Glossary · Economy
PCE inflation
PCE inflation is the rise in the prices of everything US households consume, measured by the PCE price index; the Fed’s 2% target uses it.
Also called: PCE price index, personal consumption expenditures price index, PCEPI, the Fed’s inflation measure
To September 2026. CPI inflation for the same month: 3.7%.
12 months to Sep 2026.
In plain words
The US has two big inflation gauges. The consumer price index tracks what households pay out of their own pockets. The PCE price index, from the Bureau of Economic Analysis, covers all personal consumption expenditures, including things bought for households, like the health care that employers and Medicare pay for.
In 2012 the Federal Reserve chose PCE inflation for its official goal of 2% a year. Over the 12 months to September 2026 it was 3.6%; CPI inflation was 3.7%.
The two usually tell the same story, but PCE inflation tends to run a little lower: since 1960, by 0.5 percentage points a year on average.
Example
Same prices, two answers
- Suppose rents rise 6% in a year and everything else 2%.
- In the CPI, housing costs are about a third: 1/3 × 6% + 2/3 × 2% = 3.3%.
- In PCE, they are about a sixth: 1/6 × 6% + 5/6 × 2% = 2.7%.
- PCE also counts health care paid by employers and Medicare, and updates its weights every month as people switch to cheaper goods.
Since 1960, PCE inflation has been below CPI inflation in 81% of months.
One level deeper
PCE uses mostly the same price data as the CPI, plus other sources, but weights them by what the national accounts say households consume. It is a chain-type index: the basket shifts as spending shifts, which catches people switching from beef to chicken when beef gets dear.
The Fed prefers it for three reasons: it covers more of consumption, it adapts to substitution, and past values are revised as better data arrive, so the history stays consistent. The CPI is not revised (apart from seasonal factors), which makes it handy for contracts and benefits.
It comes out later than the CPI, near the end of the following month, in the Personal Income and Outlays report.
PCE and CPI inflation since 1960
The lines move together; PCE inflation is usually a little lower. The Fed’s 2% target applies to the PCE line.
The numbers behind the chart
| Date | PCE price index | Consumer price index (CPI) |
|---|---|---|
| Jan 1960 | 1.7% | 1.2% |
| Dec 1960 | 1.5% | 1.4% |
| Dec 1970 | 4.6% | 5.6% |
| Dec 1980 | 10.6% | 12.3% |
| Dec 1990 | 4.9% | 6.3% |
| Dec 2000 | 2.5% | 3.4% |
| Dec 2010 | 1.5% | 1.4% |
| Dec 2020 | 1.3% | 1.3% |
| Dec 2022 | 5.6% | 6.4% |
| Dec 2023 | 2.9% | 3.3% |
| Dec 2024 | 2.6% | 2.9% |
| Dec 2025 | 2.8% | 2.7% |
| Sep 2026 | 3.6% | 3.7% |
Why it matters
It is the inflation number the Fed is actually judged against, so it shapes interest rates.
The gap with the CPI matters: benefits and tax brackets follow CPI measures, the Fed follows PCE.
It shows inflation as the whole economy experiences it, including the health care most people never see a bill for.
A common mistake
Myth: The Fed targets 2% CPI inflation.
In fact: Its target, announced in 2012, is 2% a year for the PCE price index. PCE usually runs below CPI (by 0.5 points on average since 1960), so CPI inflation a little above 2% can fit the target.
Questions people ask
What is the difference between PCE and CPI?
Scope (PCE includes spending made on households’ behalf, like employer-paid health care), weights (housing counts about twice as much in the CPI) and formula (PCE updates its basket monthly). The result: PCE inflation is usually a few tenths of a point lower.
When is PCE released?
Monthly, by the Bureau of Economic Analysis, about four weeks after the month ends, in the Personal Income and Outlays report.
What is core PCE?
PCE without food and energy, the Fed’s best guide to the trend: 3.1% over the 12 months to Sep 2026.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- PCE price index excluding food and energy (core PCE): U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 2.8.4, series PCEPILFE; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Personal consumption expenditures: chain-type price index: U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 2.8.4, series PCEPI; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.