CPI vs Core PCE
CPI and Core PCE are the two most-watched US inflation measures. CPI is the headline number that shows up in news coverage; Core PCE is the Federal Reserve's preferred gauge and the one targeted at 2 percent.
Also known as: CPI (All Urban) (CPI, consumer price index, inflation) · Core PCE (ex Food/Energy) (core PCE)
Why This Comparison Matters
CPI and Core PCE are the two most-watched US inflation measures. CPI is the headline number that shows up in news coverage; Core PCE is the Federal Reserve's preferred gauge and the one targeted at 2 percent. They use different methodologies and produce different readings: since 2000, CPI has averaged roughly 0.4 percentage points higher than PCE. As of early 2026, US CPI YoY sits near 3.26 percent while Core PCE sits at 3.0 percent (February 2026 reading, down from 3.10 percent in January), meaning both remain above the Fed's 2 percent target.
Two Inflation Measures, Two Purposes
The Consumer Price Index (CPI) is published monthly by the Bureau of Labor Statistics. It measures the average change over time in prices paid by urban consumers for a market basket of goods and services. CPI is the headline inflation number covered by financial media, and it is the inflation measure used to adjust Social Security benefits, index tax brackets, and set TIPS (Treasury Inflation-Protected Securities) payouts.
The Personal Consumption Expenditures (PCE) price index is published monthly by the Bureau of Economic Analysis. It measures price changes in personal consumption expenditures across a broader definition of consumer spending that includes items paid by others on consumers' behalf, such as employer-provided health insurance and Medicare. PCE is the Federal Reserve's preferred inflation measure and the series the FOMC targets at 2 percent. The Fed specifically targets Core PCE, which excludes food and energy prices, to focus on underlying inflation trends.
Scope and Coverage Differences
CPI is limited to out-of-pocket spending by urban households. It excludes rural households, institutional populations, and spending paid by someone other than the consumer directly. Urban consumers represent approximately 93 percent of the US population, so the exclusion is small but real.
PCE captures a much broader scope: all personal consumption expenditures in the National Income and Product Accounts, regardless of who paid. This includes employer-paid health insurance premiums, Medicare benefits received by seniors, Medicaid benefits, and imputed financial services. Healthcare is the single largest area where the two measures differ, because employer and government healthcare spending is about three times larger than out-of-pocket healthcare spending. CPI weights healthcare at roughly 8 percent of the basket; PCE weights it at about 17 percent.
90-Day Statistics
Explore Each Metric
Related Scenarios & Forecasts
Get daily macro analysis comparing key metrics delivered to your inbox. Stay ahead of market-moving divergences.
Frequently Asked Questions
What is the difference between CPI and PCE?+
CPI (Consumer Price Index, from BLS) measures out-of-pocket spending by urban consumers using a fixed basket (Laspeyres formula) updated every two years. PCE (Personal Consumption Expenditures, from BEA) measures all personal consumption including items paid by others (employer health insurance, Medicare) using a chain-weighted Fisher formula that captures substitution. Since 2000, CPI has averaged roughly 0.4 percentage points higher than PCE. CPI is the headline number in news; PCE is the Federal Reserve's preferred gauge and the one targeted at 2 percent.
Why does the Federal Reserve use Core PCE instead of CPI?+
The FOMC formally adopted PCE as its preferred inflation measure in February 2000. The three reasons cited: (1) PCE's Fisher formula captures substitution, giving a more accurate cost-of-living read; (2) PCE's scope is broader, including items paid on behalf of consumers such as employer health insurance; (3) PCE's historical data can be revised with improved source information, keeping the time series methodologically consistent. The Fed targets Core PCE (excluding food and energy) because food and energy are volatile and driven by global supply factors outside the Fed's policy tools.
Why is CPI usually higher than PCE?+
Three main reasons. First, substitution bias: CPI's fixed-basket Laspeyres formula does not capture consumers shifting from expensive items to cheaper alternatives, while PCE's Fisher formula does. This alone accounts for roughly 0.4 percentage points of the gap. Second, scope differences: CPI weights housing more heavily and healthcare less heavily than PCE, and housing inflation has historically been higher than healthcare inflation. Third, formula and aggregation details produce small additional differences. Net: CPI runs about 0.4 pp higher than PCE on average since 2000.
Related Comparisons
Explore Across Convex
Data sourced from FRED, CoinGecko, CBOE, and other providers. This page is for informational purposes only and does not constitute financial advice. Past performance does not guarantee future results.