CPI vs PCE: why the Fed watches a different inflation number
The Fed's 2% target is defined using the PCE price index, not the CPI that makes headlines. Both measure consumer inflation but differ in important ways. Definitions CPI, from…
The Fed's 2% target is defined using the PCE price index, not the CPI that makes headlines. Both measure consumer inflation but differ in important ways.
Definitions
CPI, from the Bureau of Labor Statistics, tracks what urban consumers pay for a fixed basket of goods and services. PCE, from the Bureau of Economic Analysis, measures what is spent on consumption, including spending paid by employers and government (such as healthcare).
Weights
Housing has a larger weight in CPI, while healthcare has more in PCE. Because shelter costs have been rising steadily, CPI often runs higher.
Why they differ
PCE updates its weights as spending changes, so it captures substitution when people switch to cheaper goods. CPI updates its weights less often.
Which to follow
Watch CPI for the cost of living and for adjustments tied to it, such as Social Security. Watch PCE to understand what the Fed targets. September CPI was 3.7%. Compare both releases when judging policy.
Educational content, not investment advice. Figures as reported on November 9, 2026; check primary sources before acting.
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