What is the name of the Federal Reserve’s preferred measure of inflation, based on consumer spending? It is the PCE price index.
The personal consumption expenditures price index, usually called the PCE price index or PCEPI, tracks price changes for goods and services consumed by people in the United States. The Bureau of Economic Analysis builds it from personal-consumption data in the national accounts, and the Federal Reserve uses it as its primary inflation gauge. The FOMC announced the switch from the Consumer Price Index to the chain-type PCE measure in its February 17, 2000 report.
PCE and CPI are related but not identical. PCE covers a broader spending concept, including some goods and services purchased on behalf of households, such as employer-provided medical care. It also uses changing expenditure weights, allowing the index to reflect substitution when consumers shift away from items whose prices rise sharply.
The headline PCE index includes food and energy. The closely watched core PCE measure excludes those categories because their prices tend to be volatile. The GDP deflator is broader than consumer spending, while the Producer Price Index tracks prices received by producers, so neither is the Fed’s preferred consumer-inflation measure.