The Core Personal Consumption Expenditures (PCE) Price Index measures the changes in the prices of goods and services purchased by consumers, excluding volatile food and energy prices. It is the Federal Reserve's primary gauge for inflation and is used to set monetary policy. By focusing on the 'core' aspect, it provides a clearer picture of long-term inflation trends. A higher-than-expected month-over-month increase often signals rising inflation.
The index uses a Fisher-type chain index formula that accounts for changes in consumer behavior, such as substituting expensive items with cheaper alternatives.
