What Is the PCE?
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Updated Oct. 31, 2024, with the most recent PCE figures.
Current PCE price index: Between August and September, the index rose 0.2%, according to the most recent Bureau of Economic Analysis report released on Oct. 31.
The personal consumption expenditures price index, or PCE, measures changes in consumer spending on typical goods and services. It’s used to calculate inflation (or deflation) in the U.S. economy.
Updated each month by the Bureau of Economic Analysis, the PCE tracks what kinds of goods and services consumers buy and how much they pay for them, as well as how consumers change their spending habits when prices rise or fall.
For example, if rising gas prices lead consumers to drive less and cut down on fuel spending, the PCE will reflect that change in purchase frequency.
What happened to PCE in September?
PCE Index increased 0.2% from August to September. Over the past 12 months, the PCE price index increased 2.1%.
Prices for goods went down 0.1% in the past month and 1.2% in the past year.
Prices for services increased 0.3% from August to September and 3.7% from a year ago.
Prices for food increased 0.4% in the past month and 1.2% in the past year.
Energy prices decreased 2% from August to September and were down 8.1% from a year ago.
Why does Core PCE matter so much?
Core PCE is the Federal Reserve's preferred measure of inflation. Core PCE excludes food and fuel — two categories that frequently experience price swings. Increases in both PCE and core PCE can signal an increase in inflation; decreases may signal a decline in inflation. These results could also indicate that inflation is still growing, but at a cooler pace.
The Fed’s target for inflation is 2% on an annual basis.
Core PCE increased 0.3% in September. Core PCE rose 2.7% over the past year compared to a 3.7% increase from September 2022 to September 2023.
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How is PCE calculated?
The BEA calculates the PCE index using data from businesses and trade organizations, and the gross domestic product. The GDP measures the total dollar value of goods and services produced in the U.S. in a given quarter.
Much of the data from businesses and producers come from the U.S. Census Bureau. Specifically, the BEA uses the Census Bureau’s annual retail trade surveys, economic censuses, quarterly services reports and monthly retail trade surveys. It also uses reports from private trade organizations and regulatory agencies. Through these reports, the BEA can estimate what goods and services were sold in a given time period.
Next, the BEA divides consumer goods into three buckets:
Durable goods, or goods that will be used for at least three years. This includes items like furniture and motor vehicles.
Non-durable goods, or goods that have a shelf life of less than three years. Food, beverages, clothing and gasoline fall into this category.
Services, such as health care, housing, utilities and insurance.
Then, the BEA takes all that consumption data and calculates how much consumers spent on those goods. It factors in things like retailer markups and taxes, too.
PCE vs. CPI
The consumer price index, or CPI, shares some similarities with the PCE. 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.
There are plenty of differences between the two indexes. The PCE is calculated by the BEA, using data from businesses. The CPI is calculated by the Bureau of Labor Statistics, using its household survey data. And the CPI measures the spending habits of urban consumers only, while the PCE reflects the spending of rural and urban consumers.
Finally, while the CPI covers consumers’ out-of-pocket expenses, the PCE takes into account purchases made on behalf of consumers by businesses, government programs or nonprofits, such as medical care covered by a person’s employer-linked insurance.
When is the PCE released?
The PCE is released monthly in the BEA’s Personal Income and Outlays report. The Personal Income and Outlays report showing October PCE data will be released on Nov. 27.
