Core PCE.
In plain English
The Bureau of Economic Analysis produces the PCE price index from the national accounts, and the core version strips out food and energy the way core CPI does. PCE differs from CPI in two main ways: it covers a broader set of spending, including care paid for on someone's behalf by insurers, and its weights update more often to reflect substitution when prices change. Those differences usually leave PCE inflation running a bit below CPI inflation. The Federal Reserve states its inflation target in PCE terms. Both indexes are revised, so early readings can move.
01Why it matters
Interest rate decisions are anchored to this index rather than to CPI, so it is the inflation number that most directly drives what you pay on a mortgage or a car loan.
02The math, step by step
Say core CPI shows 3.0 percent inflation and core PCE shows 2.6 percent for the same period. The 0.4-point gap comes mostly from different category weights and from PCE capturing spending that CPI leaves out, not from a disagreement about prices.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
They measure overlapping but different baskets. CPI tracks out-of-pocket urban consumer spending with slower-updating weights. PCE tracks broader consumption, including third-party payments, and updates weights faster. The Federal Reserve targets PCE, while most contracts index to CPI.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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