State and metro price levels are expressed as a percentage of the overall national level. As an investor, you can use CPI data to help you figure out whether the Federal Reserve is likely to raise, lower, or maintain interest rates, which will have varying effects on the stock market (and your portfolio). The CPI is one perspective you can use to get a big-picture view of the economy as a whole. When people spend without hesitation, it usually means that the economy is doing well.

The Latest PCE Inflation Data

The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and for reflecting changes in consumer behavior. For example, if the price of beef rises, shoppers may buy less beef and more overview chicken. Also, BEA revises previously published PCE data to reflect updated information or new methodology, providing consistency across decades of data that’s valuable for researchers.

When inflation is moderate and stable, it can help support a healthy economy. That’s because having some loss of purchasing power encourages individuals and businesses to not hoard cash and instead spend and invest, which supports more economic growth. “When prices are rising quickly, many of us consciously — or subconsciously — make different choices in our lives, budgets, and portfolios,” says Cox. Wages don’t just increase due to labor shortages, like during the pandemic.

What Is the Difference Between the PCE Price Index and the Consumer Price Index?

1. Personal consumption expenditures and the PCE Price Index are two different measurements.
2. Over the same period, the headline and core indexes averaged annualized rates of 6.2 percent and 5.2 percent, respectively.
3. According to the BEA, most PCE (valued by market prices, including sales tax) comes from household purchases of new goods and services from private businesses.
4. As noted above, this yearly inflation rate compounds to produce an overall price difference of 141.52% over 34 years.
5. The CPI measures the change in average consumer goods prices over time.

The bureau gathers around 64,000 price quotations each month to produce its report. The CPI is compiled monthly by the Bureau of Labor Statistics based on a survey of urban households. It measures the price of a basket of household goods and services that most people buy regularly. The PCE, produced monthly by the Bureau of Economic Analysis, Tech stocks to watch also records changes in the prices of a basket of goods from month to month.

Food Prices Up Sharply

“At this point, inflation is mainly being driven by demand,” says Callie Cox, chief market strategist at Ritholtz Wealth Management. “Supply chains have healed and goods prices have cooled, but the Fed is laser-focused on services – rent, medical bills, insurance costs, etc.” Buying a cup of coffee is more expensive than it used to be if you’re comparing the literal cost, but it’s not necessarily any less affordable than it used to be considering that people make more money nowadays. After all, the average U.S. family income in 1950 was just $3,300. PCE also includes spending on behalf of households by third parties, such as employer-paid health insurance and medical care financed through government programs, life insurance expenses, and pension plan expenses.

Another aspect of the baskets that leads to differences best crypto exchanges of 2021 is referred to as coverage or scope. The CPI only covers out-of-pocket expenditures on goods and services purchased. It excludes other expenditures that are not paid for directly, for example, medical care paid for by employer-provided insurance, Medicare, and Medicaid. The PCE data for September 2024 showed an increase in personal consumption expenditures to $20.02 trillion from August 2024. Disposable personal income remained fairly flat from the previous month at $21.9 trillion. Some observers feel that this reflects the inability to value personal consumption expenditures accurately.

Personal consumption expenditures and the PCE Price Index are two different measurements. PCE measures consumer spending on goods and services, while the PCEPI measures the prices of those goods and services. It may indicate whether prices are inflating or deflating and how consumer spending behavior changes in response. Month-to-month percent changes are calculated from unrounded data and are not annualized. The average inflation rate of 2.63% has a compounding effect between 1990 and 2024. As noted above, this yearly inflation rate compounds to produce an overall price difference of 141.52% over 34 years.

For the 12 months ending in January, prices for core goods were up 7.3 percent, compared with a 6.8 percent increase for the 12 months ending in December. Core PCE excludes food and fuel — two categories that frequently experience price swings. Increases in both PCE and core PCE can signal an increase in inflation; decreases may signal a decline in inflation. These results could also indicate that inflation is still growing, but at a cooler pace. For example, if rising gas prices lead consumers to drive less and cut down on fuel spending, the PCE will reflect that change in purchase frequency.

CPI is the weighted combination of many categories of spending that are tracked by the government. Breaking down these categories helps explain the main drivers behind price changes. When $5,382 is equivalent to $12,998.50 over time, that means that the “real value” of a single U.S. dollar decreases over time. And deRitis points to large differences across socio-economic groups when it comes to the impact of inflation. Cox further advises that you consider investing in sectors that tend to thrive during inflation because they include things people will buy no matter what, including food, energy, and medicine. While the Fed controls monetary policy, the legislative branch (Congress) and executive branch (led by the President) control fiscal policy, such as taxation and spending programs.