Personal Consumption Expenditures PCE Price Index

The Personal Consumption Expenditures (PCE) price index is a measure of the average change in prices that consumers pay for goods and services in the United States. It is a key indicator of inflation and is closely watched by economists and policymakers.

The PCE price index is calculated by the Bureau of Economic Analysis (BEA) based on data on consumer spending and prices collected by the Bureau of Labor Statistics (BLS). The index measures changes in the prices of a basket of goods and services that consumers typically buy, including food, housing, transportation, and healthcare.

One important feature of the PCE price index is that it incorporates changes in consumer behavior in response to changing prices, a concept known as "consumer substitution." For example, if the price of beef rises, consumers may choose to buy more chicken instead. The PCE price index takes this change in behavior into account, while other measures of inflation, such as the Consumer Price Index (CPI), assume that consumers continue to buy the same basket of goods regardless of price changes.

The PCE price index is often used by the Federal Reserve to guide its monetary policy decisions, as the central bank has a mandate to maintain price stability and keep inflation in check.