{"id":65,"date":"2025-05-07T10:14:17","date_gmt":"2025-05-07T14:14:17","guid":{"rendered":"https:\/\/people.bsu.edu\/econbriefs\/?p=65"},"modified":"2025-05-07T10:14:17","modified_gmt":"2025-05-07T14:14:17","slug":"measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz","status":"publish","type":"post","link":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/","title":{"rendered":"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"},"content":{"rendered":"<p><span data-contrast=\"auto\">The Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics, and the Personal Consumption Expenditures index (PCE), calculated by the Bureau of Economic Analysis, are the two most common measures of inflation. From December 2022 to January 2023, the CPI indicated that the year-to-year inflation fell by 0.1% <\/span><a href=\"https:\/\/www.bls.gov\/news.release\/pdf\/cpi.pdf\"><span data-contrast=\"none\">from 6.5% to 6.4%;<\/span><\/a><span data-contrast=\"auto\"> while the PCE rose by 0.1% from <\/span><a href=\"https:\/\/www.bea.gov\/data\/personal-consumption-expenditures-price-index\"><span data-contrast=\"none\">5.3% to 5.4%<\/span><\/a><span data-contrast=\"auto\"> over the same period. Of course, this muddles the inflation picture but leads us to inquire into the differences between the two measures. There are several differences, but here\u2019s a big one.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">Any inflation measure starts with a bundle of goods and services that presumably reflects some average of actual consumption. Inflation is when it&#8217;s more expensive to purchase that bundle of goods. Suppose our typical household consumes 50 apples and 50 oranges a month, and the initial price of both apples and oranges is $1. A household can buy the bundle for $100. Let\u2019s say next month apple prices rise to $2 while orange prices rise to $1.50. The dollar cost of the original market basket is $175 so the basket\u2019s price has risen by 75%.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">However, economists have long noted this ignores the reality of consumers mitigating the price hikes by substituting into relatively less expensive goods and out of the relatively more expensive goods. While both fruits rise in dollar price, the costs of oranges in terms of apples decreases. The 75% price increase does not include substituting into oranges. Suppose in the second month consumers adjust, consuming 35 apples and 65 oranges. That basket\u2019s price increased from $100 to $167.50\u2014reflecting a 67.5% price increase.\u00a0<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">So which method is \u201cright?\u201d Most economists think neither is definitive. If the first month\u2019s basket overestimates price rises, then the second month\u2019s\u00a0 basket underestimates them. About 100 years ago, Yale economist Irving Fisher argued an \u201cideal\u201d measure would use a geometric average of the change in the price of the two bundles, which is the convention most economists accept. (In this measure the fruit bundle\u2019s price rose by 71.2%)<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"auto\">The PCE more closely approximates the Fisher ideal since the bundle of goods and services is <\/span><a href=\"https:\/\/www.bea.gov\/help\/faq\/1006#:~:text=Because%20the%20Fisher%20chain%2Dweighting,weights%20associated%20with%20their%20derivations.\"><span data-contrast=\"none\">updated quarterly<\/span><\/a><span data-contrast=\"auto\">; while the CPI bundle of goods and services is updated <\/span><a href=\"https:\/\/www.bls.gov\/cpi\/\"><span data-contrast=\"none\">every 2 years.<\/span><\/a><span data-contrast=\"auto\"> This is one reason the Fed \u201cprefers\u201d the PCE to the CPI. We will see if the recent divergence repeats in the next data release.<\/span><span data-ccp-props=\"{&quot;201341983&quot;:0,&quot;335559731&quot;:720,&quot;335559740&quot;:480}\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics, and the Personal Consumption Expenditures index (PCE), calculated by the Bureau of Economic Analysis, are the two most common measures of inflation. From December 2022 to January 2023, the CPI indicated that the year-to-year inflation fell by 0.1% from 6.5% to 6.4%; while [&hellip;]<\/p>\n","protected":false},"author":112,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[691,532,320,92,692,93,147,524,317,7,693,690,689,553,318,566],"class_list":["post-65","post","type-post","status-publish","format-standard","hentry","category-inflation","tag-bureau-of-economic-analysis","tag-bureau-of-labor-statistics","tag-consumer","tag-consumer-price-index","tag-consumption","tag-cpi","tag-economics","tag-economist","tag-goods","tag-inflation","tag-irving-fisher","tag-pce","tag-personal-consumption-expenditures","tag-price","tag-services","tag-yale"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.7 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\" \/>\n<meta property=\"og:description\" content=\"The Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics, and the Personal Consumption Expenditures index (PCE), calculated by the Bureau of Economic Analysis, are the two most common measures of inflation. From December 2022 to January 2023, the CPI indicated that the year-to-year inflation fell by 0.1% from 6.5% to 6.4%; while [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/\" \/>\n<meta property=\"og:site_name\" content=\"Econ Briefs\" \/>\n<meta property=\"article:published_time\" content=\"2025-05-07T14:14:17+00:00\" \/>\n<meta name=\"author\" content=\"christianhartselle\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"christianhartselle\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\"},\"author\":{\"name\":\"christianhartselle\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#\\\/schema\\\/person\\\/53f4e0b981fd42f34cbb306b9ad62622\"},\"headline\":\"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz\",\"datePublished\":\"2025-05-07T14:14:17+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\"},\"wordCount\":396,\"commentCount\":0,\"keywords\":[\"Bureau of Economic Analysis\",\"Bureau of Labor Statistics\",\"consumer\",\"consumer price index\",\"consumption\",\"CPI\",\"economics\",\"economist\",\"goods\",\"inflation\",\"Irving Fisher\",\"PCE\",\"Personal Consumption Expenditures\",\"price\",\"services\",\"Yale\"],\"articleSection\":[\"Inflation\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\",\"url\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\",\"name\":\"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#website\"},\"datePublished\":\"2025-05-07T14:14:17+00:00\",\"author\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#\\\/schema\\\/person\\\/53f4e0b981fd42f34cbb306b9ad62622\"},\"breadcrumb\":{\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/2025\\\/05\\\/07\\\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\\\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#website\",\"url\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/\",\"name\":\"Econ Briefs\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/#\\\/schema\\\/person\\\/53f4e0b981fd42f34cbb306b9ad62622\",\"name\":\"christianhartselle\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g\",\"url\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g\",\"contentUrl\":\"https:\\\/\\\/secure.gravatar.com\\\/avatar\\\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g\",\"caption\":\"christianhartselle\"},\"url\":\"https:\\\/\\\/people.bsu.edu\\\/econbriefs\\\/author\\\/christianhartselle\\\/\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/","og_locale":"en_US","og_type":"article","og_title":"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs","og_description":"The Consumer Price Index (CPI), calculated by the Bureau of Labor Statistics, and the Personal Consumption Expenditures index (PCE), calculated by the Bureau of Economic Analysis, are the two most common measures of inflation. From December 2022 to January 2023, the CPI indicated that the year-to-year inflation fell by 0.1% from 6.5% to 6.4%; while [&hellip;]","og_url":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/","og_site_name":"Econ Briefs","article_published_time":"2025-05-07T14:14:17+00:00","author":"christianhartselle","twitter_card":"summary_large_image","twitter_misc":{"Written by":"christianhartselle","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/#article","isPartOf":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/"},"author":{"name":"christianhartselle","@id":"https:\/\/people.bsu.edu\/econbriefs\/#\/schema\/person\/53f4e0b981fd42f34cbb306b9ad62622"},"headline":"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz","datePublished":"2025-05-07T14:14:17+00:00","mainEntityOfPage":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/"},"wordCount":396,"commentCount":0,"keywords":["Bureau of Economic Analysis","Bureau of Labor Statistics","consumer","consumer price index","consumption","CPI","economics","economist","goods","inflation","Irving Fisher","PCE","Personal Consumption Expenditures","price","services","Yale"],"articleSection":["Inflation"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/","url":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/","name":"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz - Econ Briefs","isPartOf":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/#website"},"datePublished":"2025-05-07T14:14:17+00:00","author":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/#\/schema\/person\/53f4e0b981fd42f34cbb306b9ad62622"},"breadcrumb":{"@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/people.bsu.edu\/econbriefs\/2025\/05\/07\/measuring-inflation-using-cpi-vs-pce-by-dr-cecil-bohanon-and-dr-john-horowitz\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/people.bsu.edu\/econbriefs\/"},{"@type":"ListItem","position":2,"name":"Measuring Inflation Using CPI vs. PCE \u2013 by Dr. Cecil Bohanon and Dr. John Horowitz"}]},{"@type":"WebSite","@id":"https:\/\/people.bsu.edu\/econbriefs\/#website","url":"https:\/\/people.bsu.edu\/econbriefs\/","name":"Econ Briefs","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/people.bsu.edu\/econbriefs\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/people.bsu.edu\/econbriefs\/#\/schema\/person\/53f4e0b981fd42f34cbb306b9ad62622","name":"christianhartselle","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/secure.gravatar.com\/avatar\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g","url":"https:\/\/secure.gravatar.com\/avatar\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g","contentUrl":"https:\/\/secure.gravatar.com\/avatar\/99dffdd2c9bd490eefa22ed0b6d8d8a277b0368e88948df516427d91d6bf8ea5?s=96&d=mm&r=g","caption":"christianhartselle"},"url":"https:\/\/people.bsu.edu\/econbriefs\/author\/christianhartselle\/"}]}},"_links":{"self":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/posts\/65","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/users\/112"}],"replies":[{"embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/comments?post=65"}],"version-history":[{"count":0,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/posts\/65\/revisions"}],"wp:attachment":[{"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/media?parent=65"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/categories?post=65"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/people.bsu.edu\/econbriefs\/wp-json\/wp\/v2\/tags?post=65"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}