About this indicator
About
The Personal Consumption Expenditures price index measures inflation in the goods and services Americans actually buy. The Bureau of Economic Analysis publishes it as part of the monthly Personal Income and Outlays report, usually about a month after the reference period. The headline PCE includes food and energy. The core variant strips them. PCE is the Federal Reserve's preferred inflation measure, which is the central fact that justifies tracking it alongside CPI.
Why it matters
The Fed's 2% inflation target is set against PCE, not CPI. The two series differ in scope (PCE includes purchases made on consumers' behalf by employers or government; CPI doesn't) and weights (PCE updates weights every quarter using actual spending data; CPI updates them every two years). A persistent gap between core CPI and core PCE — typically PCE running 0.3-0.5 percentage points lower than CPI — is normal and structural.
How it's computed
BEA derives PCE from the national accounts: business retail sales feed into goods PCE, while services PCE is built from a mix of industry surveys, insurance company data, and Medicare records. The deflator is computed using a Fisher chain-weighted formula. Weights are updated quarterly, which is why PCE responds faster than CPI to changes in spending patterns.
Pitfalls
PCE's medical care weight is much higher than CPI's because PCE counts what employer health insurance and Medicare pay on consumers' behalf, while CPI only counts what households pay out of pocket. That single difference explains most of the structural CPI-vs-PCE wedge. Treating the two as substitutes leads to systematic over- or under-estimates of where inflation actually sits.