Personal consumption expenditure
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Personal consumption expenditure (PCE)
An inflation gauge used by the Federal Reserve Bank to track changes in the prices of goods and services used for personal consumption. The PCE is measured using a chain base index which closely follows the purchasing tendencies of consumers by allowing the goods and services included in the PCE basket to change as consumer preferences change. The Consumer Price Index (CPI), another inflation gauge used by the Federal Reserve, differs from the PCE in that the CPI does not account for changes in consumer preferences because it tracks the change in prices of a fixed basket of goods and services. This is why the Federal Reserve prefers the PCE and not the CPI as the inflation gauge. See: Chain base index, Consumer Price Index
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Personal Consumption Expenditures
A measure of inflation in the United States that considers how much people spend on household goods and services, while also weighting for the relative demand for those particular goods and services. In addition to calculating raw changes in prices, PCE measures rises and declines in demand based on those price changes, which, in turn, may enhance or dampen the effects of inflation. The PCE is compiled by the U.S. Department of Commerce and has little effect on the market because its results are usually predictable. It is not as widely used as the Consumer Price Index, which does not consider changes in demand as they occur. See also: PCEPI.
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