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10.02.20

Why Are Headline PCE and Median PCE Inflations So Far Apart? Cleveland Fed Researchers Explain.

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Headline PCE inflation has typically fallen below median PCE inflation. Despite their shared intention of measuring the central tendency of the PCE basket, the median and headline PCE inflation figures have recently been quite far apart: According to the data available in late August, year-over-year median PCE inflation was at 2.5 percent while headline inflation was at a much lower 1.0 percent.

To understand the reasons for this trend, Cleveland Fed Researchers Daniel Carroll and Ross Cohen-Kristiansen investigate which components of the headline measure are contributing to the difference.

“We find that energy components, which frequently undergo wide price swings, and electronics, which have been steadily decreasing in price for decades, explain most of the difference between the two inflation measures,” say the researchers. “COVID-19 and the social-distancing policies aimed at slowing the spread of the virus have also exerted a deflationary force on weighted-average price indexes.”

Read more: Why Are Headline PCE and Median PCE Inflations So Far Apart?

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