What Is the Core PCE Price Index?
The Core PCE Price Index measures the change in prices paid by consumers for goods and services excluding food and energy, which tend to be volatile. Because it filters out short‑term price swings, Core PCE is the Federal Reserve’s preferred measure of underlying inflation trends.
It captures a broad range of consumer spending and adjusts for changes in behavior, making it one of the most reliable indicators of long‑term inflation pressure.
Why Core PCE Matters
- Fed’s primary gauge of underlying inflation Core PCE is central to interest rate decisions and monetary policy.
- Less volatile than CPI Excluding food and energy provides a clearer view of persistent inflation trends.
- Broad consumer coverage Includes healthcare, housing services, financial services, and other categories often underweighted in CPI.
- Key for forecasting Economists use Core PCE to assess whether inflation is cooling or accelerating beneath the surface.
Key Insights
- Core PCE typically runs lower than Core CPI due to methodological differences.
- Sustained increases often lead to tighter monetary policy.
- Declines in Core PCE signal easing inflation pressures and improved economic stability.
- The Fed’s long‑run inflation target is 2% Core PCE, not CPI.
Source
U.S. Bureau of Economic Analysis (BEA) / FRED