CPI, PCE and "core": the inflation measures explained

The two main US inflation measures, why they differ, what "core" leaves out, and which one the Federal Reserve targets.

Inflation is the rate at which prices rise across the economy. In the United States two measures dominate the headlines, and they rarely say exactly the same thing.

The consumer price index (CPI)

The CPI is published every month by the Bureau of Labor Statistics. It tracks the prices of a fixed basket of goods and services bought by urban households: food, rent, petrol, clothing, medical care, airfares and much more. It comes out early in the month and gets the most attention, and it is used to adjust Social Security payments and the inflation-protected bonds known as TIPS.

The PCE price index

The personal consumption expenditures (PCE) price index is published by the Bureau of Economic Analysis a couple of weeks later. It covers a wider range of spending, including things bought on households' behalf such as employer-provided health insurance, and its weights change as people switch between goods when prices move. Because of these differences, PCE inflation usually runs a little lower than CPI inflation.

The Federal Reserve's 2% inflation target is defined in terms of PCE, which it considers the better gauge of the cost of living across the whole economy.

What "core" means

"Core" versions leave out food and energy, whose prices swing a lot with harvests, weather and oil markets. Core is not a better measure of what people actually pay, but it shows the underlying trend more clearly, which is why policymakers watch it closely.

The year-on-year change is the number usually quoted as "the inflation rate". Each indicator page also shows the index level and the monthly change.

Monthly versus yearly

A year-on-year rate compares prices with twelve months earlier and changes slowly. A monthly rate, often shown "annualised" by compounding it over twelve months, reacts faster but is noisier. When monthly readings run well above or below the yearly rate, it is often a sign that the yearly rate is about to move in the same direction.

On this site

All four measures, plus market-based expectations of future inflation, are on the prices pillar. Each indicator page lets you switch between the level, the yearly change and the monthly change. For how energy feeds into these numbers, see why oil prices matter.