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03.05.20

Cleveland Fed researchers examine the inflation differential between CPI and PCE

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The researchers project the inflation differential between CPI and PCE over the next few years is likely to be close to historical average.

The consumer price index (CPI) and personal consumption expenditures (PCE) price index are two alternative measures designed to track inflation rates for households. The indexes differ in construction, and because of this, often give similar but slightly different signals about inflation. Usually CPI inflation runs above PCE inflation, but not always.

In this Economic Commentary, Cleveland Fed researchers Wesley Janson and Randal Verbrugge, and contributing author Carola Conces Binder, examine the differences in how the two measures are constructed, the reasons for their historical divergences, and the prospects for their relationship going forward.

“Based on our analysis, we project that the differential over the next few years is likely to be close to its historical average, +0.29 ppts,” say the researchers. “This provides a useful rule of thumb for those interested in converting one of these inflation rates to its alternative, roughly equivalent measure.”

Read more here: The CPI–PCEPI Inflation Differential: Causes and Prospects

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