CPI* vs. PCE**
The “CPI” (Consumer Price Index) gets major attention and is often cited in the headlines and among the media and talking heads as if it’s “the” measure of inflation. And market watchers often cite CPI movements as a predictor of Federal Reserve interest rate adjustments.
However, it is important to know that the Federal Reserve is said to prefer the “PCE” (Personal Consumption Expenditures) index to gauge inflation, rather than the better-known CPI. While the CPI measures “prices” of goods and services, the PCE index measures “spending” on goods and services actually purchased and is known for indicating changes in consumer behavior. The PCE index makes it easier to see the underlying inflation (or deflation) trends by excluding two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy.
The next PCE index release is scheduled for February 29, 2024,
Sources:
*CPI: Released by The Bureau of U.S. Labor Statistics
**PCE: Released by The Bureau of Economic Analysis of the U.S. Department of Commerce
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