The Personal Consumption Expenditures (PCE) Price Index is the Federal Reserve's preferred measure of inflation. Published monthly by the Bureau of Economic Analysis (BEA), it tracks changes in the prices of goods and services consumed by all U.S. households and nonprofits.

PCE vs. CPI

While CPI measures the cost of a fixed basket of goods, PCE accounts for substitution effects—if beef becomes expensive, consumers may switch to chicken, and PCE reflects this behavioral shift. PCE also covers a broader population and includes expenditures made on behalf of consumers (e.g., employer-paid health insurance).

Why the Fed Prefers PCE

The Federal Reserve began emphasizing the PCE Price Index as its preferred inflation gauge in 2000 because:

Why PCE Runs Below CPI

PCE typically prints a few tenths below CPI, and the gap is mostly about weighting. Shelter is only about 15% of PCE versus roughly a third of CPI, so PCE is far less sensitive to housing. Healthcare, by contrast, is much larger in PCE (~17%) because it includes care paid for on consumers' behalf by employers and government programs like Medicare—spending that CPI largely excludes.

The 2% Target

The Fed targets 2% annual PCE inflation as consistent with its dual mandate of stable prices and maximum employment. While it began favoring PCE around 2000, the explicit numerical 2% goal was formally announced in January 2012. Persistent deviation above or below 2% drives monetary policy decisions.

Market Impact

PCE is released at the end of each month, roughly two weeks after CPI, and the Core PCE reading is the headline draw. Because CPI and PPI arrive first, much of PCE is already estimable—so despite being the Fed's actual target, it often moves markets less than CPI. Core PCE above 2% reinforces expectations for tighter policy; a reading trending toward or below 2% supports rate cuts. Headline PCE inflation peaked near 7.1% in mid-2022 before receding.