What Is The PCE Price Index? How Does It Track Inflation?

Prices for goods and services change constantly, rising and falling as companies and consumers react to trends in forex algorithmic trading strategies the economy. When you measure these price changes across an entire economy, that’s the rate of inflation. The current inflation rate compared to the end of last year is now 2.60%. If this number holds, $5,382 today will be equivalent in buying power to $5,521.82 next year. The current inflation rate page gives more detail on the latest inflation rates. $5,382 in 1990 is equivalent in purchasing power to about $12,998.50 today, an increase of $7,616.50 over 34 years.

Personal Consumption Expenditures: Chain-type Price Index (PCEPI)

It also uses reports from private trade organizations and regulatory agencies. Through these reports, the BEA can estimate what goods and services were sold in a given time period. The two measures have different scopes as well—for example, PCE includes the price of all medical goods and services purchased by employer-provided insurance as well as public programs such as Medicare. CPI, in contrast, only includes medical items purchased out-of-pocket by households.

1. Taken together, the differences in the two indexes result in CPI inflation readings that are generally higher than PCE inflation readings as shown in the chart for the 1995–2016 period.
2. Updated each month by the Bureau of Economic Analysis, the PCE tracks what kinds of goods and services consumers buy and how much they pay for them, as well as how consumers change their spending habits when prices rise or fall.
3. The increase in the aggregate reflects a large increase in the prices of more-processed food items (up an annualized 5.9 percent) and a slight decline in the prices of less-processed food items (down an annualized 0.9 percent).
4. To help put this inflation into perspective, if we had invested $5,382 in the S&P 500 index in 1990, our investment would be nominally worth approximately $173,300.62 in 2024.
5. The Fed also tried to stimulate the economy through QE and slashing interest rates at the start of the Covid-19 pandemic, but when the money supply grows faster than production capacity, that can create more demand-pull inflation.

In this century, then, CPI inflation has run about half a percentage point higher than PCE inflation. When calculated from 1960 the difference is almost the same, 3.9 percent for the CPI and 3.4 percent for the PCE. Since 2008, however, the difference has been smaller, 1.7 percent and 1.4 percent.

Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) (PCEPILFE)

However, the PCE’s basket of goods and services adjusts based on consumption trends, and it accounts for both rural and urban consumers, while CPI only looks at urban areas. Also, PCE includes price changes based on purchases made on a consumer’s behalf, such as the government paying for medical services for someone on Medicare. The PCE is the Fed’s preferred inflation benchmark, and the central bank typically aims for a 2% annual ctpartners confirms receipt of unsolicited proposal from dhr international inflation rate based on the PCE. The headline, or all-items, PCE price index rose an annualized 7.1 percent in January after increasing an annualized 6.5 percent in December. The price index for PCE excluding food and energy rose at a 6.4 percent annualized rate after increasing an annualized 6.5 percent a month earlier. Prices for energy goods and services rose despite a modest decline in gasoline prices, while food prices recorded another sharp increase.

What is the Consumer Price Index (CPI)?

This is a return on investment of 3,120.00%, with an absolute return of $167,918.62 on top of the original $5,382. For all these visualizations, it’s important to note that not all categories may have been tracked since 1990. This table and charts use the earliest available data for each category.

The personal consumption expenditure (PCE) measure is the component statistic for consumption in gross domestic product (GDP) collected by the United States Bureau of Economic Analysis (BEA). It consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. It measures how consumers spend their money and whether they save rather than spend. It also shows how people change their buying habits when prices change.

PCE estimates aggregate spending for a large number of commodities. This can provide a view of spending that accounts for more goods and currencies news and headlines services actually purchased. Core PCE inflation plays an important role in the U.S. financial system because the Federal Reserve references it to gauge U.S. inflation when setting monetary policy. Personal outlays is the sum of PCE, personal interest payments, and personal current transfer payments. Core inflation averaged 2.55% per year between 1990 and 2024 (vs all-CPI inflation of 2.63%), for an inflation total of 135.04%. You can compare buying power across the 50 states and the District of Columbia, or from one metropolitan area to another, by using BEA’s Regional Price Parities.

The CPI also focuses exclusively on the (urban) household sector while the PCE’s scope pulls in prices from all areas and includes nonprofit institutions. One drawback of the PCE price index, however, is that it can be substantially revised, while the (non-seasonally adjusted) CPI is never revised. This could give an edge to the CPI for some purposes (e.g., contract indexation) and also explains its use for Treasury Inflation-Protected Securities (TIPS). The prices you pay for goods and services change all the time – moving at different rates and even in different directions. A price index is a way of looking beyond individual price tags to measure overall inflation (or deflation) for a group of goods and services over time.