That’s why economists often turn to core measures of inflation instead, which rise much more stably. The personal consumption expenditures number shows how Americans collectively spend their money. Tracked from month to month, it is an indicator of the economy’s how to create an app health overall. It also is a key component of the PCE Price Index, which tracks inflation or deflation in consumer prices over time. The BEA Personal Income and Outlays report releases monthly personal spending and income statistics. The report also includes the latest calculation for the Personal Consumption Expenditures Price Index (PCEPI), which measures price changes and provides a view of inflation.
The Latest PCE Inflation Data
PCE also includes spending on behalf of households by third parties, such as employer-paid health insurance and medical care financed through government programs, life insurance expenses, and pension plan expenses. According to the BEA, most PCE (valued by market prices, including sales tax) comes from household purchases of new goods and services from private businesses. It also includes household purchases of new goods and services from the government. Say the price of gasoline rises in a given month but the price of tomatoes falls. Gasoline represents a larger portion of a family’s monthly budget, so it’s weighted more heavily in calculating PCE.
This information is important for economic policy purposes and business decision-making. These factors result in a more comprehensive measure of inflation. The Fed depends on the nuances that the PCEPI reveals because even minimal inflation can be considered an indicator of a growing economy. When people spend without hesitation, it usually means that the economy is doing well. When they cut back on spending, it points to problems in the overall economic picture. The PCEPI is also weighted by data acquired through business surveys, which tend to be more reliable than the consumer surveys used by the CPI.
Michael holds a master’s degree in philosophy from The New School for Social Research and an additional master’s degree in Asian classics from St. John’s College. CPI and the PCE index both measure U.S. inflation in similar but ultimately different ways.
Core PCE and the Federal Reserve
The Fed uses the core PCE price index as its preferred measure of U.S. inflation. PCE data may reflect measurement errors that occur during collection and in source data provided to the BEA. Personal consumption expenditures data provide a view of how the economy is faring.
- Like most price indexes, the PCEPI must incorporate a deflator (the PCE deflator) and real values to determine the amount of periodic price change.
- Breakdowns of the PCEPI show price inflation/deflation by category as well.
- PCE estimates aggregate spending for a large number of commodities.
RELATED DATA AND CONTENT
Some prices must be adjusted based on estimates because the data needed for calculation is only compiled quarterly, whereas PCE inflation is released monthly. The price index for gasoline and other motor fuel rose a seasonally adjusted 4.0 percent in October after decreasing 4.8 percent in September. Prices for the other major energy components were mixed, with the price index for natural gas down 4.6 percent and the price indexes for fuel oil and electricity up 19.8 percent and 0.1 percent, respectively. The price index for energy goods and services as a whole rose 2.5 percent in October after decreasing 2.4 percent in September. Over the six months ending in October, the trimmed mean averaged an annualized 5.1 percent rate of increase.
The Bureau of Economic Analysis (BEA) publishes the PCE price index each month to track spending and inflation. The BEA uses the current dollar value of PCE to calculate mcdonald’s stock a buy dow jones giant gets rare rating from pickiest analyst the PCE Price Index. As mentioned, PCEPI shows price inflation or deflation that occurs from one period to the next. Like most price indexes, the PCEPI must incorporate a deflator (the PCE deflator) and real values to determine the amount of periodic price change.
The PCE, produced monthly by the Bureau of Economic Analysis, also records changes in the prices of a basket of goods from month to month. The most recent PCE price 10 best dividend stocks for 2021 2020 index data was released on May 31, covering the month of April. The headline April PCE inflation figure was +2.7% year over year, unchanged from the annual rate of +2.7% in March.
The above table illustrates two commonly discussed important differences between the PCE deflator and CPI-U. The first is the relative importance of housing, which is due in part to the difference in scope mentioned above. CPI contains a large component of owner-equivalent rent, which by definition is an imputed value and not a real direct expenditure.
The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior. It measures how consumers spend their money and whether they save rather than spend. It also shows how people change their buying habits when prices change.
Fed Preference for the PCE Price Index
The Dallas Fed’s Trimmed Mean PCE inflation rate was an annualized 3.4 percent in October, compared with a 4.3 percent rate in September. Both the PCE Price Index and the Core PCE Price Index (which, again, excludes prices for food and energy) show how much prices change from one period to another. Breakdowns of the PCEPI show price inflation/deflation by category as well.
The BEA uses consumer spending to calculate its inflation gauge, the PCE Price Index, which is why measuring and tracking PCE is important. Among core goods, the price index for used light trucks (down an annualized 25.5 percent) had the largest negative impact, subtracting about 0.5 annualized percentage points from October’s core rate. Personal consumption expenditures, or PCE, allows economists, consumers, and businesses to see how well the economy is faring from month to month. The PCE data for June 2024 showed an increase in personal consumption expenditures to just over $19.44 trillion from May 2024.
Prices for core services, meanwhile, rose an annualized 4.9 percent in October after increasing an annualized 6.9 percent in September. The price index for owner-occupied stationary homes (up an annualized 7.7 percent) had the largest positive impact, contributing about 0.9 annualized percentage points to October’s core rate. This happens for a few reasons, such as when market participants speculate on energy and food and commodity futures. Because this isn’t based on real consumer supply and demand, it doesn’t necessarily reflect inflation in the real economy.
PCEPI also uses a formula that allows for changes in consumer behavior and changes that occur in the short term. Consumer spending is an important factor that drives the U.S. economy and is a key part of GDP. Core PCE inflation plays an important role in the U.S. financial system because the Federal Reserve references it to gauge U.S. inflation when setting monetary policy. PCE estimates aggregate spending for a large number of commodities. This can provide a view of spending that accounts for more goods and services actually purchased.
