Personal Consumption Expenditures (PCE)

PCE is sometimes referred to as “consumer spending.” It’s calculated by the Bureau of Economic Analysis, the same organization that calculates Gross Domestic Product, or GDP.

The PCE actually uses some information from the CPI as inputs. It just uses them a little bit differently. David Wasshausen, chief of the national income and wealth division at the Bureau of Economic Analysis said the CPI and the PCE “are largely consistent with each other” and tend to “tell the same story from period to period.”

In 2000, the Federal Reserve announced it would switch its focus from the CPI to the PCE in setting its inflation target.

“One reason the Fed likes to look at that price is because it can be fit in that GDP framework,” said Wasshausen. “And so, they can look at what is the economy doing? Is it growing or not? Is it hitting a target growth? And then let’s look very specifically at those prices that are paid by consumers in that same exact framework and see how that gauges our target inflation.”