Displayed above are two diffusion indices meant to show the fraction of inflation rates among personal consumption expenditure categories, which are significantly greater than their historical average. Displayed above are two diffusion indices meant to show the fraction of inflation rates among personal consumption expenditure categories, which are significantly less than their historical average. Displayed are the 12-month inflation rates of personal consumption expenditure price index (PCEPI), core PCEPI (this excludes food and energy), and the median inflation rate across personal consumption expenditure categories. These three series overlay the percentiles of inflation rates of the personal consumption expenditure categories. The PCEPI captures the average percentage change in prices across all categories within personal consumption expenditures. The statistics here provide a more detailed picture of these price changes.
Both indexes measure consumer spending and focus on how the ever-changing prices of goods and services affect households, as opposed to companies or producers. Both are commonly used to measure inflation, although economists prefer to use the PCE. That can result in different measurements over extended periods. Some observers feel that this reflects the inability to value personal consumption expenditures accurately. It measures how consumers spend their money and whether they save rather than spend.
The headline January PCE inflation figure was +2.4% year over year, which is less than the annual rate of +2.6% in December. PCE inflation has been trending steadily downward since the recent peak rate of +6.9%, which was seen in June 2022. Services prices increased 0.6% on the month while goods fell 0.2%; on a 12-month basis, services rose 3.9% and goods were down 0.5%. Within those categories, food prices accelerated 0.5%, offset by a 1.4% slide in energy. On a year-over-year basis, food was up 1.4% while energy fell 4.9%.
These results could also indicate that inflation is still growing, but at a cooler pace. Core PCE, which excludes food and fuel — two categories that frequently experience price swings — increased 0.4% in January. PCE data may reflect measurement errors that occur during https://www.investorynews.com/ collection and in source data provided to the BEA. It may also reflect classification errors (after collection) in the personal sector and other sectors comprising the national accounts (PCE is part of the National Income and Product Accounts constructed by the BEA).
PCE estimates aggregate spending for a large number of commodities. This can provide a view of spending that accounts for more goods and services actually purchased. Examples of services are legal advice, house cleaning, and plumbing. Consumer spending is an important factor that drives the U.S. economy and is a key part of GDP.
What Is the Difference Between the PCE Price Index and the Consumer Price Index?
PCE measures consumer spending on goods and services, while the PCEPI measures the prices of those goods and services. The Bureau of Economic Analysis calculates the figures for both. The BEA uses the current dollar value of PCE to calculate the PCE Price Index. As mentioned, PCEPI shows price inflation or deflation that occurs from one period to the next. Like most price indexes, the PCEPI must incorporate a deflator (the PCE deflator) and real values to determine the amount of periodic price change.
- The PCE inflation rate is calculated by adding up the dollar amounts of all goods and services in a basket of goods and services, comparing the total to the prior month’s figures.
- Since the GDP report is quarterly and the PCE price index is estimated monthly, the BEA must estimate even further to fill in the gap, so it uses the monthly retail sales report.
- Although they both measure inflation, there are subtle differences between the PCE price index and the CPI.
- This again stems from the definition of the index and the surveys used.
An estimated total for PCE is compiled by the BEA to measure and track changes in spending on consumer goods over time. This figure can provide an idea of economic strength and how price changes can affect spending. Personal consumption expenditure data is released monthly as part of the Personal Income and Outlays Release of the Bureau of Economic Analysis. Following the release of the data, summary statistics will be updated within five days. Say the price of gasoline rises in a given month but the price of tomatoes falls. Gasoline represents a larger portion of a family’s monthly budget, so it’s weighted more heavily in calculating PCE.
Personal Consumption Expenditures: Chain-type Price Index (PCEPI)
This happens for a few reasons, such as when market participants speculate on energy and food and commodity futures. Because this isn’t based on real consumer supply and demand, it doesn’t necessarily reflect inflation in the real economy. That’s why economists often turn to core measures of inflation instead, which rise much more stably. The PCE inflation rate is calculated by adding up the dollar amounts of all goods and services in a basket of goods and services, comparing the total to the prior month’s figures. Some prices must be adjusted based on estimates because the data needed for calculation is only compiled quarterly, whereas PCE inflation is released monthly. The above table illustrates two commonly discussed important differences between the PCE deflator and CPI-U.
It also is a key component of the PCE Price Index, which tracks inflation or deflation in consumer prices over time. The BEA reports the total value of personal consumption expenditures collectively every month. Like most economic breakdowns, PCE is split between consumer goods and services. Durable goods and nondurable goods are components of the consumer goods figure.
Ways Investors Can Make the Most of Inflation
BEA measures consumer spending for the nation and is broken down by state and the District of Columbia. While it issues the aforementioned monthly report, additional details are provided annually. Both the PCE Price Index and the Core PCE Price Index (which, again, excludes prices for food and energy) show how much prices change from one period to another. Breakdowns of the PCEPI show price inflation/deflation by category as well. The most recent PCE price index data was released on February 29, covering the month of January.
Although they both measure inflation, there are subtle differences between the PCE price index and the CPI. The most noticeable difference is that the PCE price index is not as well known as the Consumer https://www.dowjonesanalysis.com/ Price Index. Core PCE is the Federal Reserve’s preferred measure of inflation. Increases in both PCE and core PCE can signal an increase in inflation; decreases may signal a decline in inflation.
PCE vs CPI: What’s the Difference?
The monthly gain was just 0.1% in December and 2.9% from the year prior. The personal consumption expenditures number shows how Americans collectively spend their money. Tracked from month to month, it is an indicator of the economy’s health overall.
It consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. The expenditure categories series represents the number of personal consumption expenditure categories (of goods and services) with price declines as a fraction of total expenditure categories. The expenditure series represents the amount of expenditures by consumers on goods and services that are experiencing price declines as a fraction of total expenditures. Displayed are the 12-month change in the personal consumption expenditure 12-month inflation rate, core inflation, and the median 12-month change in the inflation rate across personal consumption expenditure categories. These three series overlay the percentiles of the 12-month change in inflation rates of the personal consumption expenditure categories. The personal consumption expenditures price index, or PCE, measures changes in consumer spending on typical goods and services.
Also, the PCEPI uses a chained index which compares one quarter’s price to the previous quarter’s instead of choosing a fixed base. This price index method assumes that the consumer has made allowances for changes in relative prices. That is to say, they have substituted from goods whose prices are rising to goods whose prices are stable or falling. The Fed https://www.forex-world.net/ uses the core inflation rate because food, oil, and gas prices move so rapidly, especially in the spring and summer. The core PCE price index removes that volatility and gives an accurate picture of real inflation. The PCE data for January 2024 showed an increase in personal consumption expenditures to just over $19 trillion, which is an increase of 0.2%.
