What it is
PCE inflation, short for Personal Consumption Expenditures, tracks the prices of goods and services consumed by households. Unlike the CPI, PCE includes a broader range of expenditures and allows for substitution effects, meaning it accounts for consumers switching to cheaper alternatives when prices rise. The Bureau of Economic Analysis (BEA) calculates this measure, which is a component of the Gross Domestic Product (GDP) report.
The Federal Reserve considers PCE inflation its primary measure for evaluating price stability and setting monetary policy. The Fed targets a 2% annual rate for PCE inflation. When PCE inflation deviates significantly from this target, it often prompts the Fed to adjust the federal-funds-rate. Core PCE, which excludes volatile food and energy prices, is particularly scrutinized for underlying inflation trends, influencing market expectations for rate changes.
Why it matters
PCE inflation is the Federal Reserve's preferred inflation gauge, directly influencing its policy decisions that impact your financial landscape.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice