Morningstar on Nostr: What’s the Difference Between the CPI and PCE? ========== The article explains the ...
What’s the Difference Between the CPI and PCE?
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The article explains the difference between the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE). The CPI is the most mainstream measure of consumer price changes, while the PCE is the index used by the Federal Reserve to make decisions on interest rates. The CPI and PCE can paint different pictures of inflation pressures, with the CPI generally running about 0.4 percentage points higher than the PCE. The differences between the two indexes are due to variations in formulas, components, weights, and the scope of each index. The PCE is considered more comprehensive and flexible in reflecting price pressures, while the CPI is more closely aligned with consumers' out-of-pocket spending. The PCE includes a broader subset of goods and services prices and accounts for consumer substitution more frequently. The CPI, on the other hand, includes only out-of-pocket spending made directly by consumers and does not account for health insurance expenses made on behalf of employees. Both indexes have their merits, but the PCE is favored by most price analysts. The article concludes by stating that investors should pay attention to both indexes, as unexpected CPI data can strongly impact financial markets.
https://www.morningstar.com/markets/whats-difference-between-cpi-pce
==========
The article explains the difference between the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCE). The CPI is the most mainstream measure of consumer price changes, while the PCE is the index used by the Federal Reserve to make decisions on interest rates. The CPI and PCE can paint different pictures of inflation pressures, with the CPI generally running about 0.4 percentage points higher than the PCE. The differences between the two indexes are due to variations in formulas, components, weights, and the scope of each index. The PCE is considered more comprehensive and flexible in reflecting price pressures, while the CPI is more closely aligned with consumers' out-of-pocket spending. The PCE includes a broader subset of goods and services prices and accounts for consumer substitution more frequently. The CPI, on the other hand, includes only out-of-pocket spending made directly by consumers and does not account for health insurance expenses made on behalf of employees. Both indexes have their merits, but the PCE is favored by most price analysts. The article concludes by stating that investors should pay attention to both indexes, as unexpected CPI data can strongly impact financial markets.
https://www.morningstar.com/markets/whats-difference-between-cpi-pce