In comparison to the headline
United States Consumer Price Index (CPI), which uses one set of expenditure weights for one year (since 2023), this index uses a
Fisher Price Index, which uses expenditure data from only the current period and the preceding period. Also, the PCEPI uses a chained index which compares one quarter's price to the previous quarter's instead of using a fixed base. This price index method assumes that the consumer has made allowances for changes in
relative prices. That is to say, they have
substituted from goods whose prices are rising to goods whose prices are stable or falling. The differences between the two indexes can be grouped into four categories: formula effect, weight effect, scope effect, and "other effects". is a
leading indicator, CPI and PCE
lag • The formula effect accounts for the different formulas used to calculate the two indexes. The PCE price index is based on the
Fisher-Ideal formula, while the CPI is based on a modified
Laspeyres formula. • The weight effect accounts for the relative importance of the underlying commodities reflected in the construction of the two indexes. • The scope effect accounts for conceptual differences between the two indexes. PCE measures spending by and on behalf of the personal sector, which includes both households and nonprofit institutions serving households; the CPI measures out-of-pocket spending by households. The "net" scope effect adjusts for CPI items out-of-scope of the PCE price index less items in the PCE price index that are out-of-scope of the CPI. • "Other effects" include seasonal adjustment differences, price differences, and residual differences. - See more at: https://www.bea.gov/help/faq/555 Source:
National Bureau of Economic Research ==See also==