What Is the PCE Price Index?
The PCE Price Index measures the average change in prices paid by consumers for goods and services. It is the Federal Reserve’s preferred inflation gauge because it captures a broader range of spending than CPI and adjusts for changes in consumer behavior.
PCE includes both durable goods (cars, appliances), nondurable goods (food, clothing), and services (healthcare, housing, transportation), making it one of the most comprehensive measures of inflation in the U.S. economy.
Why the PCE Price Index Matters
- Fed’s primary inflation measure PCE is used directly in monetary policy decisions, including interest rate changes.
- Broader coverage than CPI Includes more categories of spending and adjusts for substitution effects.
- Tracks real consumer purchasing power Rising PCE reduces household affordability and influences economic growth.
- Key for long‑term trend analysis PCE tends to be smoother and less volatile than CPI.
Key Insights
- PCE typically runs slightly lower than CPI due to methodological differences.
- Core PCE (excluding food and energy) is closely watched for underlying inflation trends.
- Sustained increases in PCE often lead to tighter monetary policy.
- Declining PCE signals easing inflation pressures and improved consumer conditions.
Source
U.S. Bureau of Economic Analysis (BEA) / FRED