An estimated total for PCE is compiled by the BEA to measure and track changes in spending on consumer goods over time. This figure can provide an idea of economic strength and how price changes can affect spending. Fed Chair Jerome Powell has said officials are most concerned about stubborn inflation for such services.

1. The PCE inflation rate is calculated by adding up the dollar amounts of all goods and services in a basket of goods and services, comparing the total to the prior month’s figures.
2. For example, when the price of used cars surged during the COVID-19 pandemic, rising 29.7% in May 2021 compared to the previous year, it pushed the core CPI up 3.8%.
3. Headline inflation there fell to 2.4% on a 12-month basis, though core, which excludes food, energy and tobacco, was still at 3.6%, though down from 4.2% in September.
4. The PCE is released monthly in the BEA’s Personal Income and Outlays report.
5. As mentioned, PCEPI shows price inflation or deflation that occurs from one period to the next.

According to the Bureau of Economic Analysis (BEA), a U.S. government agency, PCE accounts for about two-thirds of domestic spending and is a significant driver of gross domestic product (GDP). Prices for goods and services change constantly, rising and falling as companies and consumers react to trends in the economy. When you measure these price changes across an entire economy, that’s the rate of inflation.

Comparison to CPI

In contrast, Producer Price Index (PPI) measure costs for producers, such as businesses. The PPI was once called the Wholesale Price Index (WPI) which may be a simpler description of what it’s measuring – whole prices rather than consumer prices. The CPI is calculated by the Bureau of Labor Statistics, using its household survey data. And the CPI measures the spending habits of urban consumers only, while the PCE reflects the spending of rural and urban consumers. The consumer price index, or CPI, shares some similarities with the PCE.

What is the price index for Personal Consumption Expenditures (PCE)?

Since 2000, prices as measured by the CPI have risen by 39 percent, while those measured by the PCE have risen by 31 percent, leading to differing average annual inflation rates of 2.4 and 1.9 percent. In this century, then, CPI inflation has run about nfp forecast half a percentage point higher than PCE inflation. When calculated from 1960 the difference is almost the same, 3.9 percent for the CPI and 3.4 percent for the PCE. Since 2008, however, the difference has been smaller, 1.7 percent and 1.4 percent.

The Fed compares the core PCE inflation rate to the Fed’s 2% target inflation rate. If it is below 2%, the Fed will lower interest rates and use its other tools to spur consumer demand. If the core rate is above 2% for an extended period, then the Fed will take action to prevent inflation. But prices of services such as health care, financial advice, transportation and insurance advanced more dramatically in Thursday’s report. That’s partly because those services are weighted more heavily in the PCE than the CPI index and higher wholesale costs play a bigger role, Barclays wrote in a research note.

The BEA uses the current dollar value of PCE to calculate the PCE Price Index. As mentioned, PCEPI shows price inflation or deflation that occurs from one period to the next. Like most price indexes, the PCEPI must incorporate a deflator (the PCE deflator) and real values to determine the amount of periodic price change. The Core Personal Consumption Expenditure (PCE) price index tracks changes in the prices of goods and services bought by consumers for their own use, but excludes food and energy. The release adds to evidence that inflation, while still elevated, is continuing to make progress lower, possibly giving the Fed a green light to start cutting interest rates later this year. On a monthly basis, core inflation increased from 0.1% in November.

The Latest PCE Inflation Data

That index — which ticked up 6.6% in March from a year earlier, 5.2% excluding food and energy — is put out by the Bureau of Economic Analysis. “That’s the primary inflation measure that the Fed is using to make monetary policy decisions,” said Julie Smith, an economics professor at Lafayette College. Specifically, the BEA uses the Census Bureau’s annual retail trade surveys, economic censuses, quarterly services reports and monthly retail trade surveys. It also uses reports from private trade organizations and regulatory agencies. Through these reports, the BEA can estimate what goods and services were sold in a given time period. The Fed uses the core inflation rate because food, oil, and gas prices move so rapidly, especially in the spring and summer.

For example, the weight on health care in the PCE reflects what consumers pay out-of-pocket for premiums, deductibles, and copayments as well as the costs covered by employer-provided insurance, Medicare, and Medicaid. This difference in scope means that the PCE deflator and the CPI have very different weights. For example, the weight on health care is 22% in the PCE index, but just 9% in the CPI. The weight on housing is 42% in the CPI, but just 23% in the PCE index. That means that a given increase in health care prices will affect the PCE index much more than it will affect the CPI.

Personal income growth edged lower to 0.3%, in line with the forecast. An important inflation gauge released Friday showed that the rate of price increases cooled as 2023 came to a close. Headline inflation there fell to https://g-markets.net/ 2.4% on a 12-month basis, though core, which excludes food, energy and tobacco, was still at 3.6%, though down from 4.2% in September. Like the Fed, the European Central Bank targets 2% as a healthy inflation level.

Inflation is typically described on a year-on-year basis, so saying that inflation is at 8% for September 2022, means that prices are 8% higher, on average, in September 2022 than in September 2021. The PCE is released monthly in the BEA’s Personal Income and Outlays report. The next Personal Income and Outlays report is expected to be released on Feb. 29.

It gives companies insight into their business needs concerning products and services and can affect hiring and investing. The BEA uses consumer spending to calculate its inflation gauge, the PCE Price Index, which is why measuring and tracking PCE is important. The most recent PCE price index data was released on January 26, 2024, covering the month of December 2023. The headline December PCE inflation figure was +2.6% year over year, which is the same as the annual rate of +2.6% in November. The PCE price index looks at U.S. inflation by measuring changes in the cost of living for households.

PCE Price Index

Both the PCE Price Index and the Core PCE Price Index (which, again, excludes prices for food and energy) show how much prices change from one period to another. Breakdowns of the PCEPI show price inflation/deflation by category as well. Economists and analysts use PCE to make projections about future spending and economic growth.

The CPI rose 1.3% from May to June 2022, adjusted for the usual seasonal fluctuations, but didn’t change at all between June and July 2022. The CPI can be volatile from one month to the next, but the trend in the monthly change over several months can be an important indication of inflation. Another commonly used measure posted by the  BLS and often reported in the press compares the CPI in one month to the same month a year earlier – in other words how much prices have risen over the past 12 months. In July 2022, for instance, the CPI stood 8.5% above the year earlier reading. This approach is less influenced by a month with a particularly small or large change but both ways of reporting changes in the CPI are accurate. When including the volatile food and energy components, inflation was considerably softer — up just 0.1% on the month and 3.8% from a year ago.

The personal savings rate for May rose to 4.6%, up from 4.3% in April. The index’s calculation is based on a fixed “basket” of over 100,000 goods, services and rentals, which are given different weights based on a household survey and tracked over time. While the basket is updated yearly, the way consumers behave can change a lot more frequently. Another aspect of the baskets that leads to differences is referred to as coverage or scope. The CPI only covers out-of-pocket expenditures on goods and services purchased. It excludes other expenditures that are not paid for directly, for example, medical care paid for by employer-provided insurance, Medicare, and Medicaid.

On a monthly basis, prices rose 0.2%, in line with June’s increase,  according to the personal consumption expenditures (PCE) price index. Core inflation, whether the CPI or the PCE price index, is defined as the change in prices excluding food and energy prices, which tend to be volatile. While food and energy are, of course, major parts of any household’s budget, core inflation is often seen as a better indicator of the underlying pace of price changes. The BEA reports the total value of personal consumption expenditures collectively every month. Like most economic breakdowns, PCE is split between consumer goods and services.

CPI data have already been released for the same month once we see the PCE numbers. The PCE price index and the CPI use different types of formulas to calculate price changes. The CPI formula is more likely to be affected by categories with wide price swings such as computers and gasoline. The PCE calculations smooth out these price swings, which makes the PCE less volatile than the CPI.