Personal Consumption Expenditures (PCE) Price Index

Play Cpi Inflation Tracker →

What Is Personal Consumption Expenditures (PCE) Price Index?

The Personal Consumption Expenditures (PCE) price index is a broad measure of inflation that tracks the change in prices of goods and services bought by U.S. consumers. It is the inflation gauge the Federal Reserve officially prefers over the CPI, and the Fed's well-known 2% inflation target is defined in terms of PCE. Although the PCE and CPI usually tell a similar story, they can diverge: they weight spending categories differently and draw on different data sources and methodologies. The PCE, for example, tends to give housing a smaller weight and captures shifts in what consumers actually buy more fully. Like the CPI, the PCE comes in a headline version and a core version that excludes volatile food and energy prices to highlight the underlying inflation trend.

Why It Matters

The PCE price index matters because it is the yardstick the Federal Reserve actually uses when it decides whether inflation is on track toward its 2% goal, which in turn influences interest-rate decisions. People often assume the Fed targets the more famous CPI, but it does not; knowing that the Fed watches PCE helps explain why official inflation commentary can differ from the headline CPI numbers dominating the news. Because the two indexes weight categories and source data differently, PCE inflation frequently runs a few tenths of a percentage point below CPI inflation. Following the PCE therefore gives a clearer read on the specific measure guiding U.S. monetary policy, while the CPI remains more relevant for cost-of-living adjustments such as Social Security benefits.

Test Your Knowledge

Questions on this topic from the EconRecall fact bank: