Learn
What is PCE inflation?
The Personal Consumption Expenditures (PCE) price index is the Fed's preferred inflation gauge, published by the BEA monthly. It differs from CPI in three ways: it uses a chain-weighted formula that adjusts for substitution, it covers a broader basket including employer-paid healthcare, and it weights shelter less heavily. Core PCE - the version that excludes food and energy - is the specific measure tied to the Fed's 2% target. PCE typically runs 30-50bp below CPI.
- Fed's target
- 2% on core PCE, year-over-year.
- Chain-weighted
- Adjusts for consumer substitution; CPI does not.
- Lower shelter weight
- ~16% vs CPI's ~33%.
- Released monthly
- Last week of the month, 8:30 AM ET.
CPI vs PCE - the differences
| | CPI | PCE | |---|---|---| | Publisher | BLS | BEA | | Formula | Laspeyres (fixed basket) | Chain-weighted | | Shelter weight | ~33% | ~16% | | Healthcare | Out-of-pocket | Includes employer-paid | | Fed target | No | Yes (2% on core) |
Why it matters
The Fed targets core PCE specifically. So while CPI moves markets on the day of release, PCE is what determines the medium-term rate path. Watching one without the other gives an incomplete picture.
What to watch
- Core PCE YoY - primary Fed measure
- 3-month annualized core PCE - trend acceleration/deceleration
- Supercore PCE (services ex-housing) - Powell's preferred wage-pressure read