ThePCE price index (PCEPI), also referred to as thePCE deflator,PCE price deflator, or theImplicit Price Deflator for Personal Consumption Expenditures (IPD forPCE) by the Bureau of Economic Analysis (BEA) and as theChain-type Price Index for Personal Consumption Expenditures (CTPIPCE) by theFederal Open Market Committee (FOMC), is a United States-wide indicator of the average increase in prices for all domestic personal consumption. It is currently benchmarked to a base of 2017, consistent with the US National Accounts. Using a variety of data including U.S. Consumer Price Index and Producer Price Index prices, it is derived from the largest component of the GDP in the BEA'sNational Income and Product Accounts, personal consumption expenditures. PCE data is published monthly by theBureau of Economic Analysis (BEA) as part of theNational Income and Product Accounts (NIPA).
Thepersonal consumption expenditure (PCE) measure is the component statistic for consumption ingross domestic product (GDP) collected by the United StatesBureau of Economic Analysis (BEA). It consists of the actual and imputed expenditures ofhouseholds and includes data pertaining to durable and non-durablegoods andservices. Essentially, it is a measure of goods and services targeted towards individuals and consumed by individuals.[1] The less volatile measure of the PCE price index is thecore PCE (CPCE) price index, which excludes the more volatile andseasonal food and energy prices (e.g.,oil,natural gas, andelectricity).
PCE has been tracked since January 1959 and tended to record softer inflation readings than the CPI. This may be due to the failure of CPI to take into account thesubstitution effect. Alternatively, an unpublished report on this difference by theBureau of Labor Statistics suggests that most of it is from different ways of calculating hospital expenses and airfares.[2]
In its "Monetary Policy Report to the Congress" ("Humphrey–Hawkins Report") from February 17, 2000 the FOMC said it was changing its primary measure of inflation from theconsumer price index to the "chain-type price index for personal consumption expenditures".[3]
In comparison to the headlineUnited States Consumer Price Index (CPI), which uses one set of expenditure weights for one year (since 2023),[4] this index uses aFisher Price Index, which uses expenditure data from only the current period and the preceding period. Also, the PCEPI uses a chained index which compares one quarter's price to the previous quarter's instead of using a fixed base. This price index method assumes that the consumer has made allowances for changes inrelative prices. That is to say, they havesubstituted from goods whose prices are rising to goods whose prices are stable or falling.
The differences between the two indexes can be grouped into four categories: formula effect, weight effect, scope effect, and "other effects".
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| Consumption category | CPI-U | PCE-UNADJ | PCE-ADJ |
|---|---|---|---|
| Food and beverages | 15.1% | 13.8% | 17.0% |
| Food at home | 8.0% | 7.1% | 8.7% |
| Food away from home | 6.0% | 4.9% | 6.0% |
| Alcoholic beverages | 1.1% | 1.8% | 2.3% |
| Housing | 42.4% | 26.5% | 32.9% |
| Rent | 5.8% | 3.4% | 4.1% |
| Owner's equivalent rent | 23.4% | 12.9% | 15.9% |
| Other housing | 13.1% | 10.2% | 12.9% |
| Apparel | 3.8% | 4.5% | 5.5% |
| Medical care | 6.2% | 22.3% | 5.0% |
| Transportation | 17.4% | 13.9% | 17.3% |
| Motor vehicles | 7.9% | 5.3% | 6.5% |
| Gasoline | 4.2% | 3.4% | 4.3% |
| Other transportation | 5.4% | 5.2% | 6.5% |
| Education and communication | 6.0% | 5.4% | 6.7% |
| Recreation | 5.6% | 6.8% | 8.4% |
| Tobacco | 0.7% | 1.0% | 1.2% |
| Other goods and services | 2.8% | 5.8% | 6.0% |
| 100% | 100% | 100% |
Source:National Bureau of Economic Research[7]
The above chart is illustrative but may not reflect current values. The comparisons in the table above will vary over time as the relative weights of the components of the indexes change. The CPI base price and weightings are adjusted every two years.
The above table illustrates two commonly discussed important differences between the PCE deflator and CPI-U. The first major difference is the relative importance of housing, which is due in part to the difference in scope mentioned above. CPI contains a large component of owner-equivalent rent, which by definition is an imputed value and not a real direct expenditure. The second major difference in weight is healthcare. This again stems from the definition of the index and the surveys used. CPI measures only the out-of-pocket healthcare costs of households, while PCE includes healthcare purchased on behalf of households by third parties, including employer-provided health insurance. In the United States,employer health insurance is a large component and accounts for much of the difference in weights.
Another notable difference is that prices and weightings of the CPI are based on household surveys, while those of the PCE are based on business surveys. One reason for the difference in formulas is that not all the data needed for the Fisher-Ideal formula is available monthly even though it is considered superior. CPI is a practical alternative used to give a quicker read on prices in the previous month. PCE is typically revised three times in each of the months following the end of a quarter, and then the entireNIPA tables are re-based annually and every five years. Despite all these conceptual and methodological differences, the two indexes track fairly closely when averaged over several years.[8]
