PCE (Personal Consumption Expenditures)

Personal Consumption Expenditures (PCE) is a measure of consumer spending on goods and services published monthly by the U.S. Bureau of Economic Analysis (BEA) as part of the Personal Income and Outlays report. The PCE Price Index — derived from this spending data — is the Federal Reserve's preferred measure of inflation and the target it uses for its 2% inflation goal. PCE differs from the more familiar Consumer Price Index (CPI) in three important ways. First, PCE has a broader scope: it includes spending on behalf of consumers by third parties (such as employer-paid health insurance and government Medicare/Medicaid payments), while CPI captures only out-of-pocket consumer spending. Second, PCE uses a chain-weighted formula that adjusts expenditure weights monthly to reflect substitution behavior (consumers buying chicken when beef gets expensive), while CPI uses fixed weights updated every two years. Third, PCE weights are derived from business surveys and tend to give less weight to housing/shelter than CPI does. As a result, PCE inflation typically runs 0.3-0.4 percentage points below CPI inflation in the same period. Core PCE — excluding volatile food and energy — is the specific measure FOMC members track most closely when judging whether inflation is on track to return to the 2% target. PCE is released approximately one week after the corresponding CPI report.