Personal Consumption Expenditures (PCE) measure the prices consumers pay for goods and services across the U.S. economy. Produced by the U.S. Bureau of Economic Analysis, PCE captures spending patterns across households, including items paid for on consumers’ behalf, such as healthcare. The data are released monthly and are embedded within the national income and product accounts. Because of this integration, PCE offers a comprehensive view of inflation as it relates to overall economic activity.
PCE is often considered a more reliable inflation gauge than the Consumer Price Index (CPI). Unlike CPI, which uses a relatively fixed basket of goods, PCE adjusts for changes in consumer behavior as prices rise or fall. This “substitution effect” reflects how people actually spend when faced with higher costs. Additionally, PCE covers a broader range of expenditures, making it a more accurate measure of economy-wide inflation pressures.
Over the past 50 years, PCE inflation has mirrored major economic cycles in the United States. Inflation surged during the 1970s amid oil shocks and loose monetary policy, before falling sharply in the 1980s as the Federal Reserve tightened financial conditions. From the 1990s through the late 2010s, PCE inflation remained relatively subdued, often hovering below 2%. This long period of stability helped shape the Fed’s modern inflation framework and its preference for PCE as a policy benchmark.
Over the past year, PCE inflation has moderated from the elevated levels seen during the post-pandemic recovery. Supply chain normalization, easing goods inflation, and slower consumer demand have contributed to this cooling trend. However, services inflation—particularly housing and healthcare—has remained more persistent. As a result, PCE has continued to run above the Federal Reserve’s long-term target, though the direction has been encouraging.
In conclusion, PCE provides a deeper and more accurate lens into inflation than headline CPI. Its broader scope, adaptive weighting, and integration with GDP make it especially valuable for understanding underlying economic conditions. For policymakers, investors, and market participants, PCE remains the inflation measure that matters most. The key question now is whether recent progress is sufficient to support a policy shift—or whether patience will remain the Fed’s guiding principle.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Facts presented have been obtained from sources believed to be reliable, though Gryphon cannot guarantee their accuracy or completeness. Gryphon does not provide tax, accounting, or legal advice. Individuals should seek such guidance from qualified professionals based on their specific circumstances.