PCE Price Index
The Personal Consumption Expenditures (PCE) Price Index is a measure of inflation in the United States economy. It is released by the Bureau of Economic Analysis (BEA) on a monthly basis as part of the Personal Income and Outlays report. The PCE Price Index tracks changes in the prices of goods and services that are purchased by households. It is considered to be a more comprehensive measure of inflation compared to the Consumer Price Index (CPI) because it includes a broader range of goods and services.
Calculation
The PCE Price Index is calculated using a formula that takes into account the changes in prices for a specific basket of goods and services purchased by consumers. This basket is updated periodically to reflect changes in consumer spending patterns. The index is weighted based on the relative importance of each item in the basket, with items that are more commonly purchased by consumers given greater weight.
Significance
The PCE Price Index is closely watched by policymakers, economists, and investors as a key indicator of inflationary pressure in the economy. The Federal Reserve uses the PCE Price Index, along with other inflation measures, to set monetary policy. If the PCE Price Index shows signs of increasing inflation, the Federal Reserve may raise interest rates to help cool down the economy.
