
PCE Inflation
PCE inflation measures the average change in prices of goods and services purchased by households in the U.S. economy. It is the Federal Reserve's preferred measure of inflation because it provides a broader and more flexible view of consumer spending.
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Key Features of PCE Inflation:
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It's based on actual consumer spending
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Unlike CPI, which uses fixed weights, PCE adjusts as people change their buying habits (e.g., switching from expensive brands to cheaper alternatives).
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It includes third-party spending
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PCE accounts for goods and services paid for by others, such as employer-provided healthcare and Medicare/Medicaid spending—making it more comprehensive than CPI.
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It's calculated by the Bureau of Economic Analysis (BEA)
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It comes from GDP data rather than household surveys, making it more reflective of the entire economy.
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It's lower and smoother than CPI
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Because of its broader scope and ability to adjust for spending patterns, PCE inflation tends to be slightly lower and less volatile than CPI inflation over time.
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