CPI vs PCE: Why the Two Inflation Measures Differ

From January 1960 to August 2026, the Consumer Price Index (CPI) showed higher US inflation than the Personal Consumption Expenditures (PCE) Price Index in 647 of 799 months. The mean gap was 0.45 percentage points. In 4 of the first 8 months of 2026, PCE inflation was above CPI inflation.

This guide takes the four differences in turn: coverage, weights, formula and substitution. It then measures the gap since 1960, splits it into causes and sets out why the Fed targets PCE.

The CPI comes from the Bureau of Labor Statistics (BLS). It prices the out-of-pocket spending of urban households, as we explain in what the CPI is and how it is measured.

The PCE Price Index comes from the Bureau of Economic Analysis (BEA). It prices spending by households and by the nonprofit institutions that serve them, as we explain in what PCE inflation is.

The two indexes also cover different items, which the BEA calls a difference in scope. PCE counts medical care that employers' insurance, Medicare and Medicaid pay for on consumers' behalf. It also counts financial services provided without a direct fee, spending by nonprofit institutions and foreign travel by US residents.

These are items only PCE covers. They add to PCE inflation and not to CPI inflation, so they lower the gap, which is CPI inflation minus PCE inflation. Among them, from the first quarter of 2002 to the second quarter of 2026, hospital and nursing-home services lowered the average gap by 0.25 percentage points.

Each index weights an item by its share of total spending.

The weights come from different sources. CPI weights come from the Consumer Expenditure Survey, a survey of households. PCE weights come mainly from business surveys, such as the Census Bureau's retail trade and services surveys. A 2007 BEA comparison of CPI and PCE notes that response rates and quality differ between the two kinds of survey.

The update speeds differ too. The same comparison described the CPI's weights as updated every 2 years. The BLS now updates its weights every year. The 2023 update used spending data from 2021. PCE weights shift every month through the formula described next.

Weights matter most for housing. Housing is a larger share of the CPI's out-of-pocket spending than of PCE's total spending. The BEA's weight effect adds 0.63 percentage points to the average gap. Of those 0.63, rent of shelter accounts for 0.50.

Of that 0.50, imputed rent, which is what owners would pay to rent their own homes, accounts for 0.38.

The formula decides which basket a price index uses.

The CPI follows a Laspeyres formula, modified by a lag in updating its base period. It prices a fixed basket, bought in that base period, at today's prices.

The PCE Price Index follows the Fisher-Ideal formula. It takes the geometric mean of two indexes, which is the square root of their product. One is a Laspeyres index. The other is a Paasche index, which prices the basket bought in the current period.

Each month's change is then linked to the index of the month before. That is why the index is called chained. The Paasche index generally reads lower than the Laspeyres index, so the Fisher-Ideal index, which sits between them, generally reads lower than the Laspeyres index.

The BEA measures the formula effect by recomputing PCE with the Laspeyres formula. That raises PCE inflation by 0.16 percentage points a year on average.

Substitution is the shift that consumers make when relative prices change. A fixed basket cannot show it.

Suppose two goods each cost 10 and a household buys 10 of each. The price of good A rises to 20. The household then buys 2 of good A and 18 of good B. These numbers are invented to show the mechanism.

The old basket, 10 of each, costs 200 at the old prices and 300 at the new ones, a rise of 50.0%. The new basket, 2 of A and 18 of B, costs 200 at the old prices and 220 at the new ones, a rise of 10.0%.

The Fisher-Ideal index is their geometric mean, 28.5%, below the simple average of 30.0%.

The CPI allows for some switching. Since January 1999 the BLS has used a geometric mean for most basic indexes, which allows modest substitution within a category. It does not allow for switching between categories. The Chained Consumer Price Index (C-CPI-U), a second BLS index, does.

The chart compares the CPI and the chained index with PCE inflation from January 2002 to August 2026. CPI inflation ran 0.32 percentage points above PCE inflation on average. The chained index ran 0.07 above.

In 95% of months the CPI was higher than the chained index. The mean difference was 0.25.

The BEA's formula effect changes PCE's formula on PCE data, which raises PCE inflation by 0.16. The chained CPI changes the CPI's formula on CPI data, which lowers CPI inflation by 0.25. Its latest 12 months are interim.

The chart plots CPI inflation minus PCE inflation for each month from January 1960 to August 2026. Both are 12-month changes. A reading above zero means CPI inflation was higher. The orange lines are decade means.

CPI inflation was higher in 647 of 799 months. The gap ranged from −1.68 percentage points in August 1983 to 3.86 in June 1980. The mean was 0.45 and the median was 0.38. One month is missing because the October 2025 CPI was never published.

The decade means ran from 0.20 in the 1960s to 0.68 in the 1990s, when CPI inflation was higher in all 120 months. The 2020s mean runs from January 2020 to August 2026. PCE inflation was higher in January, February, March and August 2026.

Since January 2002, the gap ranged from −0.63 percentage points in July 2009 to 1.84 in June 2022.

The CPI here is unadjusted and PCE is seasonally adjusted, as revised to date. Core versions are in our guide to core vs headline inflation.

The BEA reconciles the two indexes quarter by quarter in its Table 9.1U. The chart averages the 96 quarters from the first quarter of 2002 to the second quarter of 2026 that have a CPI line.

CPI inflation averaged 2.63% over those quarters and PCE inflation averaged 2.28%. Each cause bar starts where the one above it ends, so the bars add up to that gap of 0.35 percentage points. The BEA uses quarterly changes at annual rates, so its figure differs slightly from the 0.32 monthly mean above.

Weights add the most, at 0.63. Items only PCE covers take away the most, at 0.68. Items only the CPI covers, among them physician and hospital services, add back 0.20, so net scope, the two scope bars together, takes away 0.48. The small bar, Other, adds 0.04.

In February 2000, the Fed's report to Congress began to frame the inflation forecasts of the Federal Open Market Committee (FOMC) in PCE terms. A footnote said the PCE index "avoids some of the upward bias associated with the fixed-weight nature of the CPI". Our PCE guide covers the footnote's other reasons.

The FOMC adopted its 2% goal on 24 January 2012. Its statement, reaffirmed on 27 January 2026, sets the goal "as measured by the annual change in the price index for personal consumption expenditures". We explain the level in why the Fed targets 2% inflation.

The Fed has not dropped the CPI. Its website says it "closely tracks other inflation measures as well".

The gap means the two numbers cannot be swapped. A 2% rate on PCE has no fixed CPI equivalent, because the monthly gap since 2002 has ranged from −0.63 to 1.84 percentage points.

The two indexes answer different questions. The CPI asks what urban households pay out of pocket for a fixed basket. PCE asks what all consumption costs as spending patterns change. Over 799 months, CPI inflation averaged 0.45 percentage points above PCE inflation, but PCE was higher in 152.

This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.

The same approach runs through everything else we publish:

Good places to start on the website:

The CPI prices the out-of-pocket spending of urban households with survey weights and a fixed-basket formula. The PCE Price Index prices all consumer spending, including care paid for by employers, Medicare and Medicaid, with a formula that tracks changing spending. From 1960 to August 2026, CPI inflation averaged 0.45 percentage points more. See what PCE inflation is.

The Fed's February 2000 report said the PCE index avoids some of the CPI's upward bias, has weights based on a more comprehensive measure of expenditures and can be revised. The 2% goal has been set on PCE since 24 January 2012. The Fed still tracks the CPI. We cover the target in why the Fed targets 2% inflation.

CPI inflation was higher in 647 of 799 months from January 1960 to August 2026, by a mean of 0.45 percentage points. PCE inflation was higher in 4 of the first 8 months of 2026. The gap changes with the period. Its decade mean ranged from 0.20 to 0.68.

This record cannot rank them, because the two indexes answer different questions. The CPI prices a fixed basket of out-of-pocket spending by urban households. PCE prices all consumer spending as the mix changes. The chained CPI, which allows for switching, averaged 0.07 percentage points above PCE from 2002 to August 2026.

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