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US Inflation: PCE vs CPI

CPI readings released mid-week tell one story, but here's how they stack up against their rival index.

Published June 12, 2024 at 5:28pm by James Powel

BLS Report Shows Flat Month-Over-Month CPI, Fed Holds Interest Rates

The Bureau of Labor Statistics reportedCPI inflation at 0% month-over-month and 3.3% year-over-year in May. This was below Reuter's survey forecast of a 0.1% increase and a 3.4% annual gain.

"We want to see more good data to bolster our confidence that inflation is moving sustainably toward 2%." – Federal Reserve Chair Jerome Powell

The Federal Reserve has kept interest rates unchanged, awaiting further evidence of cooling inflation. The Personal Cost Expenditure index (PCE), due later this month, may provide this. The PCE measures a broader range of goods and services and has been lower than CPI, though following similar trends historically. In April, CPI was 3.4% while PCE was 2.7%.

CPI vs. PCE:

The Federal Reserve Bank of Cleveland notes the difference is in the "basket of goods" measured: CPI covers household expenditures, while PCE includes purchases made on behalf of households (e.g., medical care paid by employers/government).
They also differ in the number of items covered and how categories are weighted.
BLS releases CPI mid-month, while PCE (from the Bureau of Economic Analysis) comes out at month-end.
The next PCE report is due June 28, offering another data point for the Fed's inflation outlook.