The monthly CPI release from the Bureau of Labor Statistics generates significant media coverage. But the Federal Reserve — the institution responsible for controlling inflation — uses a different measure entirely: the PCE price index (Personal Consumption Expenditures), published by the Bureau of Economic Analysis. This distinction matters enormously for understanding Fed policy.
The same concept, different methodology
Both CPI and PCE measure how prices for consumer goods and services change over time. The key differences lie in what they cover, how they weight components, and who publishes them.
Healthcare is the biggest structural difference. CPI covers only what consumers pay directly — co-pays, premiums, and dental bills. PCE covers the full cost of healthcare consumed on consumers' behalf, including employer-sponsored insurance premiums and government payments through Medicare and Medicaid. Healthcare is about 22% of the PCE basket vs 8% in CPI. The BLS publishes a formal comparison; the BEA's FAQ explains it from the other side.
Housing also differs significantly. Shelter has a ~36% weight in CPI-U but only ~15% in PCE. Because shelter inflation has been running above 4%, this weight difference alone keeps CPI about 0.7–1.0 percentage points above PCE in 2026.
Basket updating: CPI uses a fixed basket updated every 2 years. PCE uses chain-weighting that adjusts expenditure shares each period — so if beef prices spike and consumers buy more chicken, PCE automatically reflects that substitution. This makes PCE less prone to "substitution bias" than CPI. The Federal Reserve explains its preference for PCE in detail.
How big is the gap in practice?
Over long periods, core PCE runs about 0.3–0.5 percentage points below core CPI. In September 2026, core CPI was 2.2%. Applying that typical gap, core PCE is estimated at approximately 1.7–1.9% — which would be within striking distance of the Fed's 2% target. The BEA will publish official September PCE data in late October. Historical PCE and CPI series going back decades are on FRED.
The same economy, the same price changes — but PCE tells a consistently lower inflation story than CPI. The Fed knows this, which is why it chose PCE.
Why does the Fed prefer PCE?
The Fed formally adopted the PCE target in 2012, but the rationale goes back further. In a 2000 speech, then-Chair Alan Greenspan argued that PCE better captures the full cost of living because it includes third-party payments. The Fed also points to PCE's longer historical revision record as making it a more consistent benchmark. The full policy rationale is in the FOMC's Statement on Longer-Run Goals.
Implications for reading inflation news
When you read that US CPI was 3.2% in September, the Fed's internal assessment is probably closer to 2.7% using PCE — and closer to 1.7–1.9% using core PCE. Both tell a story of inflation approaching target; the PCE story is more advanced. That's why the Fed might consider rate cuts even while CPI remains "above 3%." For more on how real interest rates factor in, see our real rates explainer.