The Personal Consumption Expenditures price index — the Federal Reserve's preferred inflation gauge, published monthly by the Bureau of Economic Analysis.
The PCE price index measures changes in the prices paid by US households for all goods and services. Unlike CPI, which uses a fixed basket, PCE uses a chain-weighted formula that continuously updates its basket to reflect actual spending patterns. If beef prices rise and consumers substitute chicken, PCE captures that switch while CPI continues weighting beef at its original level — meaning PCE tends to show lower inflation when consumer substitution is occurring.
The Fed targets 2% annual core PCE inflation (excluding food and energy). Because it is the explicit target of US monetary policy, core PCE is arguably the single most important data point for interest rate decisions. Markets analyze whether core PCE is running above or below 2% to assess whether the Fed will be pressured to tighten or is positioned to ease.
PCE also has broader scope than CPI: it includes expenditures made on behalf of consumers — such as employer-paid health insurance and Medicare/Medicaid payments — which CPI does not. This makes PCE more comprehensive but more reliant on estimates. It is released monthly as part of the Bureau of Economic Analysis's Personal Income and Outlays report.
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