PCE InflationPCE
PCE inflation is the change in the US personal consumption expenditures price index, published monthly by the Bureau of Economic Analysis. It is the measure behind the Federal Reserve's 2% inflation goal; "core" PCE excludes food and energy.
Headlines often quote the CPI, but the Federal Reserve's official inflation yardstick is PCE. Because it shapes the Fed's view of prices, PCE releases can move interest-rate expectations, bonds, the dollar and stocks. This entry explains what PCE measures, how it differs from CPI and how traders read it.
- Category
- Fundamentals and Macroeconomics
- Reading time
- 3 min
- Also called
- PCE price index, Personal consumption expenditures price index, Core PCE
- Updated
PCE inflation in plain words
The PCE price index tracks inflation or deflation across a wide range of consumer spending and reflects changes in consumer behaviour.1
The Fed's committee judges that 2% inflation over the longer run, measured by the annual change in the PCE price index, best fits its mandate.2
The Bureau of Economic Analysis publishes the data monthly, including percentage changes by type of product.1
How to read a PCE release, step by step
Check headline PCE
All items, year over year.
Check core PCE
Excluding food and energy, a cleaner trend.
Compare with forecasts
Surprises move markets. See Economic Calendar.
Look at the monthly change
Shows momentum better than the yearly rate.
Compare with 2%
The Fed's longer-run goal. See Federal Reserve.
Think about rates
Hotter inflation can mean higher rates. See Interest Rate.
Worked examples
Example 1 — Year-over-year rate
2.5% inflationThe PCE index rises from 120.0 to 123.0 over a year.
| Change | 3.0 ÷ 120.0 = 2.5% |
| Vs 2% goal | 0.5 points above |
The Fed measures its 2% goal with the annual change in the PCE price index.2
Example 2 — Annualising a monthly figure
≈ 3.7% paceCore PCE rises 0.3% in a month.
| Annualised (compounded) | 1.003^12 − 1 ≈ 3.7% |
Even small monthly moves add up; traders often annualise them to compare with the 2% goal. See Compound Interest.
Example 3 — A market reaction
Hawkish surpriseCore PCE comes in at 2.9% versus 2.7% expected.
| Surprise | +0.2 points |
| Typical reaction | Yields up, rate-cut bets down |
Because PCE is the Fed's preferred gauge, upside surprises can shift rate expectations. See Rate Hike and Rate Cut.
PCE vs CPI
| Aspect | PCE | CPI |
|---|---|---|
| Publisher | Bureau of Economic Analysis | Bureau of Labor Statistics |
| Fed target measure | Yes | No |
| Coverage | Broader consumer spending | Urban household purchases |
| Typical level | Usually a bit lower | Usually a bit higher. See Consumer Price Index |
How traders use PCE data
Rate expectations
Gauging the Fed's next move. See Federal Open Market Committee.
Bond trading
Inflation moves yields. See Treasury Bills, Notes and Bonds.
Currency trading
Rate outlook drives the dollar. See US Dollar Index.
Equity valuations
Higher rates pressure growth stocks.
Advantages and disadvantages
Advantages
- The Fed's chosen inflation measure.
- Broad coverage of consumer spending.
- Adjusts for changing spending patterns.
Disadvantages
- Released after CPI, so less of a surprise.
- Revised over time.
- Less familiar to the public.
Going deeper
Read as far as you need. Each level builds on the one before it.
Headline and core
Beginner
Core PCE leaves out food and energy, whose prices swing a lot, so it shows the underlying trend more clearly. See Inflation.
Why 2%
Intermediate
The FOMC set out its 2% longer-run goal in its Statement on Longer-Run Goals and Monetary Policy Strategy.2
Consumer behaviour
Advanced
Because PCE reflects shifts in what consumers buy, it captures substitution — such as switching to cheaper goods — better than a fixed basket.1
Common mistakes
Confusing PCE with CPI
They differ in coverage and level.
Ignoring core
Headline swings with energy prices.
Watching only yearly rates
Monthly changes show momentum.
Forgetting expectations
Markets react to surprises.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- PCE inflation tracks prices of consumer spending.
- It is published monthly by the BEA.
- The Fed targets 2% PCE inflation.
- Core PCE excludes food and energy.
- Surprises move rate expectations and markets.
Frequently asked questions
When is PCE released?
Why does the Fed prefer PCE to CPI?
What is core PCE?
Further learning
- Consumer Price Index
The better-known inflation gauge.
- Federal Reserve
Who targets PCE.
- Federal Open Market Committee
Where rate decisions are made.
- Breakeven Inflation
Market-implied inflation.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- U.S. Bureau of Economic Analysis. Personal Consumption Expenditures Price Index (opens in a new tab) Checked .
- Federal Reserve Board. Why does the Federal Reserve aim for inflation of 2 percent over the longer run? (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.