Federal Reserve Targets 2% Core PCE as Gauge Runs 0.2-0.4 Points Below CPI
Updated
Updated · linkedin · Aug 4
Federal Reserve Targets 2% Core PCE as Gauge Runs 0.2-0.4 Points Below CPI
3 articles · Updated · linkedin · Aug 4
Summary
The Fed’s inflation target is 2% core PCE, a measure that typically prints 0.2 to 0.4 percentage points below CPI over longer periods.
PCE differs from CPI by using business sales data, broader spending coverage and monthly updated weights, while also modeling substitution when consumers switch purchases after price increases.
CPI instead tracks a more fixed consumer basket built from household surveys and roughly 80,000 monthly price checks, making it less responsive to substitution and less subject to later revisions.
That methodological gap matters because PCE also feeds into GDP calculations, so a lower inflation reading can make real economic growth appear stronger.