Inflation?

The key gauge to measure inflation is the PCE price index or PCEPI which stands for Personal Consumption Expenditures Price Index.

Different equations are used to calculate the PCE price index:

  1. Based on GDP data from manufacturers, the BEA calculates how much is consumed. Manufacturer orders, utility sales, service receipts, and securities brokerage commissions are all included in this figure.
  2. It includes imports which are not included in the GDP report.
  3. The BEA then subtracts exports and changes in inventory to determine the amount available for domestic consumption.
  4. It then distributes the outcome among domestic buyers. This is based on trade data, Census Bureau data, and household income surveys, among other sources.
  5. The BEA transforms producer prices to the final price charged by the buyer.
  6. The Consumer Price Index is then used to calculate the costs.

The PCE price index is a little more broad-based than the CPI because it incorporates forecasts from other price sources.

The PCE price index tracks the goods and services purchased by all households and non-profits in the United States. The CPI only takes into account all urban households.

Different methods are used to measure price adjustments in the PCE price index and the CPI.

Categories with large price fluctuations, such as computers and oil, are more likely to influence the CPI formula. 

These price fluctuations are smoothed out by PCE estimates, making the PCE less volatile than the CPI.

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The PCE for February was 1.6% while the PCE minus food and energy was 1.4%.

Do not expect a major jump in PCE when the BEA reports the March numbers.

Expect both PCEs to be below 2%.