PCE Report: Inflation, Consumer Spending and Why It Matters

Updated on May 30.

Price increases have largely stabilized compared to recent years, according to the latest personal consumption expenditures price index, a Bureau of Economic Analysis report released on May 30.

Current PCE price index readings:

PCE price index for April: 2.1% increase from one year ago.
Core PCE price index for April: 2.5% increase from one year ago — just 0.5 percentage points higher than the Federal Reserve’s target rate.
Real PCE — total consumer spending adjusted for inflation — increased by 0.1 percentage point between March and April.

The personal consumption expenditures price index, or PCE, measures changes in consumer spending on typical goods and services. It’s used to calculate inflation (or deflation) in the U.S. economy.

Updated each month by the Bureau of Economic Analysis (BEA), the PCE tracks what kinds of goods and services consumers buy and how much they pay for them, as well as how consumers change their spending habits when prices rise or fall.

For example, if rising gas prices lead consumers to drive less and cut down on fuel spending, the PCE will reflect that change in purchase frequency.

What happened to PCE in April?

The PCE price index increased by less than 0.1% in April compared to March and increased by 2.1% over the past 12 months

How is PCE calculated?

The BEA calculates the PCE index using data from businesses and trade organizations, and the gross domestic product. The GDP measures the total dollar value of goods and services produced in the U.S. in a given quarter.

Much of the data from businesses and producers come from the U.S. Census Bureau. Specifically, the BEA uses the Census Bureau’s annual retail trade surveys, economic censuses, quarterly services reports and monthly retail trade surveys. It also uses reports from private trade organizations and regulatory agencies. Through these reports, the BEA can estimate what goods and services were sold in a given time period.

Next, the BEA divides consumer goods into three buckets:

Durable goods, or goods that will be used for at least three years. This includes items like furniture and motor vehicles.
Non-durable goods, or goods that have a shelf life of less than three years. Food, beverages, clothing and gasoline fall into this category.
Services, such as health care, housing, utilities and insurance.

Then, the BEA takes all that consumption data and calculates how much consumers spent on those goods. It factors in things like retailer markups and taxes, too.

What’s the core PCE and why does it matter so much?

Core PCE is the Federal Reserve's preferred measure of inflation. Core PCE excludes food and fuel — two categories that frequently experience price swings. Increases in both PCE and core PCE can signal an increase in inflation; decreases may signal a decline in inflation. These results could also indicate that inflation is still growing, but at a cooler pace.

The Fed’s target for inflation is 2% on an annual basis.

Core PCE increased less than 0.1% from March to April.
Core PCE rose 2.5% over the past year compared to a 2.9% increase from April 2023 to April 2024.

Two inflation reports: PCE vs. CPI

The consumer price index, or CPI, shares some similarities with the PCE. Both indexes measure consumer spending and focus on how the ever-changing prices of goods and services affect households, as opposed to companies or producers. Both are commonly used to measure inflation, although economists prefer to use the PCE.

There are plenty of differences between the two indexes. The PCE is calculated by the BEA, using data from businesses. The CPI is calculated by the Bureau of Labor Statistics, using its household survey data. And the CPI measures the spending habits of urban consumers only, while the PCE reflects the spending of rural and urban consumers.

Finally, while the CPI covers consumers’ out-of-pocket expenses, the PCE takes into account purchases made on behalf of consumers by businesses, government programs or nonprofits, such as medical care covered by a person’s employer-linked insurance.

» MORE: What does the U.S. manufacture and how does it impact the economy?

What did people spend money on in April?

Current-dollar PCE — the total consumer spent on goods without inflation adjustments — went up by $47.8 billion in April. That amount reflects a $55.8 billion increase in spending on services, offset by $8 billion in spending on goods.

Here’s a look at a few consumer spending increases.

Goods increases:

Gasoline and other energy goods: 8.1 billion
Furnishings and durable household equipment: 1.1 billion

Goods declines:

Food and beverages: -0.4 billion
Recreational goods and vehicles: -3.1 billion
Clothing and footwear: -3.4 billion
Motor vehicles and parts: -4.5 billion
Other nondurable goods: -5.9 billion

Services increases:

Housing and Utilities: +24.7 billion
Health care: +20.3 billion
Food services and accommodations: +13 billion
Other services: +4.9%
Transportation services: +4.4 billion
Recreation services: +0.6 billion

Services declines:

Financial services and insurance: -4.6 billion
Final expenditures of nonprofit institutions: -7.5 billion

Personal income rose and savings declined in April

Personal income increased by 0.8% in April. It was largely driven by higher wages and government benefits. The benefits increase reflect enhanced Social Security payments as part of the Social Security Fairness Act.

Disposable income (after-tax) increased by 0.8% in April.

Personal savings rate — the amount people save from their disposable income — went down by 0.8%.

When is the PCE released?

The PCE is released monthly in the BEA’s Personal Income and Outlays report. The Personal Income and Outlays report showing April PCE data will be released on May 30.