What is the Personal Consumption Expenditures (PCE) inflation index? What is Core PCE?

The Personal Consumption Expenditures (PCE) inflation index is an alternative measure of inflation in the United States. It is produced by the Bureau of Economic Analysis (BEA), which is part of the U.S. Department of Commerce. The PCE inflation index measures the changes in prices of goods and services purchased by households and is based on personal consumption expenditures, which include items purchased by individuals and nonprofit institutions serving households.

There are two main versions of the PCE inflation index:

• PCE Price Index: This index measures the changes in prices paid by households for goods and services. It includes a wide range of expenditures, such as food, housing, clothing, transportation, healthcare, and other goods and services.
• PCE Core Price Index: Similar to Core CPI, this index excludes volatile items such as food and energy prices from its calculation. It focuses on the changes in prices of goods and services excluding food and energy, aiming to provide a more stable measure of underlying inflation trends.

The Federal Reserve often closely monitors the PCE inflation index, along with other inflation measures such as CPI and Core CPI, to assess the overall inflationary pressures in the economy. The Fed uses this information to make decisions about monetary policy, including setting interest rates, to achieve its dual mandate of price stability and maximum employment.