Financial encyclopedia

CPI and PCE around the fed to cut interest rates! ?

The Fed uses inflation data indicators to judge the current market situation and decide the monetary policy that should be adopted. Among many inflation indicators, CPI and PCE are the most influential:

What is CPI?

The consumer price index (CPI) of the United States is published once a month by the Bureau of Labor Statistics (BLS). Through the household questionnaire survey, the consumer's household purchase status is known, which covers the cost of purchased goods or services.

What is PCE?

The price index of personal consumption expenditure (PCE) is published once a month by the Bureau of Economic Analysis (BEA) of the United States. The survey includes household and business expenditures, covering out-of-pocket expenses of purchased goods or services+other expenses not paid out of pocket (such as claims paid by insurance companies).

Core CPI & Core PCE

Core inflation index is an inflation index made by deducting the goods (e.g. energy, food) that are particularly sensitive to prices from the original range of goods and services, and excluding the goods whose prices change greatly temporarily due to environmental, political and other factors. Therefore, it can better represent the actual inflation degree, and the inflation index that has not been deducted will be more stable.

What is the difference between PCE and CPI?

PCE covers a wider area than CPI.

PCE survey method is business survey and CPI is family questionnaire survey.

PCE's item classification weight will be dynamically adjusted every month to avoid the sudden surge of a single commodity affecting the overall index CPI, and it will be updated every two years.

For the average consumer, CPI is closer to reality, and it is also used as a reference to measure the inflation of many financial commodities. The Fed is most concerned about PCE, especially the core PCE.