Definition
The PCE price index measures the prices of everything consumers buy, as recorded in the national accounts by the Bureau of Economic Analysis (BEA). PCE stands for personal consumption expenditures. Its 12-month change is PCE inflation, and the version without food and energy is core PCE inflation. Since 2012 the Federal Reserve has defined its inflation goal as 2% a year on this measure, which makes it the single most important inflation number for interest-rate decisions.
How it works
PCE and CPI use many of the same underlying prices, but they differ in three ways:
- Scope. PCE includes spending made on behalf of households, such as employer-paid health insurance and Medicare, so medical care weighs more and rent weighs much less than in the CPI.
- Weights. PCE updates its spending weights every quarter. When beef gets expensive and people buy chicken, the index follows them; the CPI basket changes more slowly.
- Source of weights. CPI weights come from a household survey; PCE weights come from business data on what was actually sold.
The net result is that PCE inflation has usually run a little below CPI inflation, often by a few tenths of a point.
Example
In June 2022 CPI inflation reached about 9.1%, while PCE inflation peaked the same month at about 7.2%. The gap was unusually large because rent and gasoline, two of the categories rising fastest, carry more weight in the CPI. For the Fed, the lower PCE number was still more than three times its 2% goal.
PCE in history
Readings at turning points, taken from the same data as the chart above.
| Date | PCE | Core PCE | CPI | What was happening |
|---|---|---|---|---|
| Feb 1975 | 10.4% | 10.2% | 11.2% | Record high for core PCE inflation. |
| Mar 1980 | 11.6% | 9.3% | 14.8% | Record high for headline PCE inflation. |
| Jul 2009 | −1.5% | 0.6% | −2.1% | Recession: headline PCE inflation below zero, core at a record low. |
| Mar 2012 | 2.3% | 2.0% | 2.7% | Weeks after the Fed first announced its 2% PCE goal (January 2012). |
| Dec 2019 | 1.6% | 1.5% | 2.3% | A decade of PCE inflation mostly below 2%. |
| Jun 2022 | 7.2% | 5.3% | 9.1% | Post-pandemic peak of headline PCE inflation. |
| Sep 2026 | 3.6% | 3.1% | 3.7% | Latest reading. |
Monthly values. Explore every month on the PCE Inflation Rate chart.
Common mistakes
- “The Fed targets core PCE.” The official goal is for headline PCE inflation. Core PCE is the Fed’s preferred guide to where headline is heading.
- Comparing a CPI reading with the 2% goal CPI usually runs above PCE, so 2.5% CPI inflation can be consistent with roughly 2% PCE inflation.
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PCE: questions and answers
When is PCE inflation released?
With the BEA’s Personal Income and Outlays report, usually near the end of the month following the reference month – about two weeks after the CPI for the same month.
Why does PCE inflation run lower than CPI inflation?
Mainly because housing has a much smaller weight in PCE and because PCE weights adjust faster when consumers switch to cheaper products.