Personal consumption expenditures price index
Encyclopedia
The PCE price index (or PCE deflator, PCE price deflator, Implicit Price Deflator for Personal Consumption Expenditures (IPD for PCE) (by the BEA
), 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.
The less volatile measure of the PCE price index is the core PCE price index which excludes the more volatile and seasonal food
and energy
prices.
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 price
s. 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 Alternatively, an unpublished report on this difference by the BLS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.
" ("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".
Bureau of Economic Analysis
The Bureau of Economic Analysis is an agency in the United States Department of Commerce that provides important economic statistics including the gross domestic product of the United States. Its stated mission is to "promote a better understanding of the U.S...
), Chain-type Price Index for Personal Consumption Expenditures (CTPIPCE) (by the FOMC
Federal Open Market Committee
The Federal Open Market Committee , a committee within the Federal Reserve System, is charged under United States law with overseeing the nation's open market operations . It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money...
)) 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
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
in the BEA's National Income and Product Accounts
National Income and Product Accounts
The National Income and Product Accounts are part of the national accounts of the United States. They are produced by the Bureau of Economic Analysis of the Department of Commerce...
, personal consumption expenditures.
The less volatile measure of the PCE price index is the core PCE price index which excludes the more volatile and seasonal food
Food
Food is any substance consumed to provide nutritional support for the body. It is usually of plant or animal origin, and contains essential nutrients, such as carbohydrates, fats, proteins, vitamins, or minerals...
and energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
prices.
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 price
Relative price
A relative price is the price of a commodity such as a good or service in terms of another; i.e., the ratio of two prices. A relative price may be expressed in terms of a ratio between any two prices or the ratio between the price of one particular good and a weighted average of all other goods...
s. That is to say, they have substituted
Substitute good
In economics, one way we classify goods is by examining the relationship of the demand schedules when the price of one good changes. This relationship between demand schedules leads economists to classify goods as either substitutes or complements. Substitute goods are goods which, as a result...
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
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...
suggests that most of it is from different ways of calculating hospital expenses and airfares.
Federal Reserve
In its "Monetary Policy Report to the CongressMonetary Policy Report to the Congress
The Monetary Policy Report to the Congress is a semi-annual report prepared by the Board of Governors of the Federal Reserve and presented to the Congress of the United States...
" ("Humphrey-Hawkins Report
Humphrey-Hawkins Full Employment Act
The Full Employment and Balanced Growth Act , is an act of legislation by the United States government.-Impetus and strategy:...
") from February 17, 2000 the FOMC said it was changing its primary measure of inflation from the consumer price index
Consumer price index
A consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
to the "chain-type price index for personal consumption expenditures".
See also
- Price indexPrice indexA price index is a normalized average of prices for a given class of goods or services in a given region, during a given interval of time...
- Consumer price indexConsumer price indexA consumer price index measures changes in the price level of consumer goods and services purchased by households. The CPI, in the United States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of...
- Gross domestic product deflator (IPD for GDP)
- Household final consumption expenditureHousehold final consumption expenditureis a transaction of the national account's use of income account representing consumer spending. It consists of the expenditure incurred by households on individual consumption goods and services, including those sold at prices that are not economically significant...
(HFCE) - InflationInflationIn economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
- Personal Consumption ExpenditurePersonal Consumption ExpenditureThe Personal Consumption Expenditure 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...
Data
- 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
Articles
- 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