Personal consumption expenditures price index
The Personal Consumption Expenditure (PCE) measure is the component statistic for consumption in GDP collected by the BEA. It consists of the actual and imputed expenditures of households and includes data pertaining to durable and non-durable goods and services. It is essentially a measure of goods and services targeted towards individuals and consumed by individuals.
The PCE price index (PCEPI), also referred to as the PCE deflator, PCE price deflator, or the Implicit Price Deflator for Personal Consumption Expenditures (IPD for PCE) by the BEA, and as the Chain-type Price Index for Personal Consumption Expenditures (CTPIPCE) by the FOMC, is a United States-wide indicator of the average increase in prices for all domestic personal consumption. It is indexed to a base of 100 in 2005. Using a variety of data including U.S. Consumer Price Index and Producer Price Index prices, it is derived from the largest component of the Gross Domestic Product in the BEA's National Income and Product Accounts, personal consumption expenditures.
In comparison to the headline United States Consumer Price Index, which uses one set of expenditure weights for several years, this index uses a Fisher Price Index, which uses expenditure data from both the current period and the preceding period. Also, the PCEPI uses a chained index which compares one quarter's price to the last quarter's instead of choosing a fixed base. This price index method assumes that the consumer has made allowances for changes in relative prices. That is to say, they have substituted from goods whose prices are rising to goods whose prices are stable or falling.
The PCE rises about one-third percent less than the CPI, a trend that dates back to 1992. This may be due to the failure of CPI to take into account substitution. Alternatively, an unpublished report on this difference by the BLS suggests that most of it is from different ways of calculating hospital expenses and airfares.
In its "Monetary Policy Report to the Congress" ("Humphrey-Hawkins Report") from February 17, 2000 the FOMC said it was changing its primary measure of inflation from the consumer price index to the "chain-type price index for personal consumption expenditures".
Comparison to CPI
The differences between the two indexes can be grouped into four categories: formula effect, weight effect, scope effect, and "other effects."
- The formula effect accounts for the different formulas used to calculate the two indexes. The PCE price index is based on the Fisher-Ideal formula, while the CPI is based on a modified Laspeyres formula.
- The weight effect accounts for the relative importance of the underlying commodities reflected in the construction of the two indexes.
- The scope effect accounts for conceptual differences between the two indexes. PCE measures spending by and on behalf of the personal sector, which includes both households and nonprofit institutions serving households; the CPI measures out-of-pocket spending by households. The "net" scope effect adjusts for CPI items out-of-scope of the PCE price index less items in the PCE price index that are out-of-scope of the CPI.
- "Other effects" include seasonal adjustment differences, price differences, and residual differences. 
- See more at: http://bea.gov/faq/index.cfm?faq_id=555#sthash.JuqEcudO.dpuf
|FOOD AND BEVERAGES||15.1%||13.8%||17.0%|
|Food at home||8.0%||7.1%||8.7%|
|Food away from home||6.0%||4.9%||6.0%|
|Owner's equivalent rent||23.4%||12.9%||15.9%|
|EDUCATION AND COMMUNICATION||6.0%||5.4%||6.7%|
|OTHER GOODS AND SERVICES||2.8%||5.8%||6.0%|
- Price index
- Consumer price index
- Gross domestic product deflator (IPD for GDP)
- Household final consumption expenditure (HFCE)
- Personal Consumption Expenditure
- "Definition of 'Personal Consumption Expenditures - PCE'." Accessed 31-July-2012
- Boskin, et al. "Consumer Prices, The Consumer Price Index, and the Cost of Living." Journal of Economic Perspectives - Volume 12, Number 1. Winter 1998, pp3-26.
- Humphrey- Hawkins report from Feb. 2000
- Briefing.com: Personal Income and Spending
- Briefing.com: CPI (the core CPI as a comparison)
- Current News Releases from the Bureau of Economic Analysis (click on "Personal Income and Outlays", then skip to Tables 9 and 11 near the bottom.)
- St. Louis Federal Reserve FRED2 PCE data index
- Personal Consumption Expenditures - PCE
- FAQ: What is the "market-based" PCE price index?
- Implicit Price Deflator for Personal Consumption Expenditures - Referendum 47's Measure of Inflation
- FRB: Monetary Policy Report to the Congress - February 17, 2000
- TheStreet.com: Meet the Fed's Elusive New Inflation Target