Personal consumption expenditure (PCE)

Definition:

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

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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