JustChartsWhat Is PCE Inflation and Why Does the Fed Prefer It to CPI?
PCE (the Personal Consumption Expenditures price index) is a measure of US inflation published monthly by the Bureau of Economic Analysis. The Federal Reserve defines its 2% inflation goal in terms of PCE, and it watches core PCE (excluding food and energy) most closely. PCE usually runs a little below CPI because it covers more spending and adjusts for people switching between products.
Key facts
- Published by
- US Bureau of Economic Analysis (BEA)
- Release
- monthly, in the Personal Income and Outlays report, 8:30 a.m. New York time
- Fed target
- 2% PCE inflation over time
- Core PCE
- excludes food and energy
- Versus CPI
- usually a few tenths lower
PCE vs CPI
| PCE | CPI | |
|---|---|---|
| Publisher | Bureau of Economic Analysis | Bureau of Labor Statistics |
| Covers | Spending by and on behalf of households (incl. employer-paid healthcare) | Out-of-pocket spending by urban consumers |
| Weights | Update as spending patterns change | Fixed basket, updated periodically |
| Housing weight | Smaller | Larger |
| Fed target based on it? | Yes | No |
Because PCE allows for substitution — buying chicken when beef gets expensive — and gives housing a smaller weight, it typically shows slightly lower inflation than CPI.
Why markets sometimes react less to PCE
CPI and producer prices come out earlier in the month, so economists can estimate PCE closely in advance. The market reaction is biggest when core PCE surprises the forecast or when the Fed is close to changing rates.
How PCE affects markets
- Hotter than expected: higher-for-longer rate expectations — dollar up, gold and stocks usually down.
- Cooler than expected: rate cuts become more likely — dollar down, gold and stocks usually up.
The same report includes personal income and spending, which show how strong the consumer is.
Frequently asked questions
Why does the Fed use PCE instead of CPI?
PCE covers a broader range of spending, updates its weights as people change what they buy, and is revised with better data over time, so the Fed considers it a better measure of overall inflation.
When is PCE released?
Monthly by the Bureau of Economic Analysis, usually near the end of the month at 8:30 a.m. New York time, as part of the Personal Income and Outlays report.
What is core PCE?
PCE inflation excluding volatile food and energy prices. It is the Fed’s preferred gauge of underlying inflation.
Put it into practice
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See the next PCE release on the calendarThis article is for education only and is not financial advice. Trading leveraged products carries a high risk of losing money. Contract sizes, trading hours and leverage limits vary by broker and country — always check your own broker’s specifications.