The PCE Index downplays housing costs in its basket, weighting them at only 16% versus 32% in the CPI.
August 16: "Inflation: The Differences Between The PCE Index and The Consumer Price Index"
For our purposes the greatest practical difference is the weighting of shelter. As we saw last week the CPI weights rent and Owner Equivalent Rent at 32%+ while in the PCE Index it is about half as much.
The Fed switched from monitoring the CPI to using the PCE in the year 2000, here's Greenspan's rationale.
The difference in weightings is a result of differences in methodology, which ends up with PCE showing lower inflation than the CPI, something the U.S. government likes as it lowers annual Cost of Living Adjustments across a huge range of programs from Social Security to government employee salaries and pensions to food stamps to disability payments.
We'll come back to this after the PCE is released on Friday the 27th, but for now here is an older explainer from the BLS:
Differences between the Consumer Price Index and the Personal Consumption Expenditures Price Index
And from the President of the St. Louis Federal Reserve Bank, James Bullard:....
First up, CNBC, October 1:
Key inflation gauge watched by the Federal Reserve hits another 30-year high
- Core inflation rose 3.6% in August from a year ago, the biggest jump in more than 30 years.
- Personal spending increased 0.8%, slightly higher than the estimate.
Inflation ran at a fresh 30-year high in August as supply chain disruptions and extraordinarily high demand fueled ongoing price pressures, the Commerce Department reported Friday.
The core personal consumption expenditures price index, which excludes food and energy costs and is the Federal Reserve’s preferred measure of inflation, increased 0.3% for the month and was up 3.6% from a year ago. The monthly gain was slightly higher than the 0.2% Dow Jones estimate and the annual forecast of 3.5%.
That’s the highest since May 1991 and reflective of inflationary pressures that Fed Chairman Jerome Powell said earlier this week he finds “frustrating.”
On a headline basis, PCE prices rose 0.4% for the month and 4.3% year over year, the highest since January 1991. That reflected a 24.9% increase in energy prices and a 2.8% rise in food.
Goods prices rose by 5.5% while services increased by 3.6%.
The rise in inflation came as personal income increased 0.2% for the month, in line with estimates but indicative that real income is falling as inflation rises. Spending accelerated 0.8%, slightly above the 0.7% forecast.....
....MORE
PCE IS not only up, the rate of increase is still rising. From the BEA:
Personal Consumption Expenditures Price Index
Change from Month One Year Ago August 2021 4.3 percent July 2021 4.2 percent June 2021 4.0 percent May 2021 4.0 percent The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. Quarterly and annual data are included in the GDP release.
Current release (October 1)
And real incomes continue their decline.
