Core Personal Consumption Expenditures (PCE) Price Index

The Core PCE Price Index is a measure of inflation in the United States that is based on the Personal Consumption Expenditures (PCE) component of GDP. It is considered the preferred inflation gauge by the Federal Reserve and is closely monitored by policymakers, economists, and financial markets.

The PCE Price Index measures the average change over time in the prices paid by consumers for a basket of goods and services. It includes a wide range of expenditure categories, such as housing, healthcare, transportation, education, and recreation. The index is calculated using a weighted average, where the weights reflect the relative importance of each category in total consumer spending.

The “core” version of the PCE Price Index excludes the prices of food and energy, which are considered more volatile and subject to temporary fluctuations. By excluding these components, the core index aims to capture the underlying inflation trend and provide a more stable measure of inflationary pressures. This allows policymakers to focus on persistent inflationary factors and make more informed decisions about monetary policy.

The Bureau of Economic Analysis (BEA) within the U.S. Department of Commerce is responsible for calculating and publishing the PCE Price Index on a monthly basis. The index is expressed as a percentage change from a reference period, usually a base year, and is reported as both a headline figure (including all components) and a core figure (excluding food and energy).

The Core PCE Price Index is closely watched because it provides insights into the purchasing power of consumers and the overall health of the economy. It is used by the Federal Reserve to assess inflationary pressures and make decisions on interest rates and monetary policy. Additionally, it is closely monitored by investors and financial markets, as changes in inflation can impact the value of investments and influence market expectations.

Overall, the Core PCE Price Index is a key measure of inflation in the United States that excludes volatile food and energy prices to provide a more stable measure of underlying inflationary pressures. It is widely used by policymakers, economists, and investors to assess the health of the economy and make informed decisions.