How to Trade PCE (the Fed’s Preferred Inflation Gauge)

The personal consumption expenditures (PCE) price index measures the prices of goods and services bought by, or on behalf of, US households. The BEA publishes it monthly at 08:30 ET in the Personal Income and Outlays report, about four weeks after the reference month (BEA). Since February 2026 the report has been released at the same time as GDP (BEA).

The Fed has preferred PCE as its inflation measure since 2000 (Federal Reserve, Cleveland Fed), largely because it covers a wide range of household spending (Federal Reserve), and when it set its 2% goal in 2012 it defined the target as the annual change in the PCE price index (Federal Reserve). FOMC participants' economic projections are for headline and core PCE inflation (Federal Reserve).

The same release covers personal income, consumer spending and the saving rate.

• Scope: CPI covers out-of-pocket spending by urban households. PCE extends to rural households and includes spending made on consumers' behalf, such as employer-provided health insurance, Medicare and Medicaid (Cleveland Fed).
• Weights: healthcare carries a higher weight in PCE because it includes those third-party payments, while shelter carries a lower one (Cleveland Fed). Shelter is 35.6% of CPI (BLS).
• Formula: PCE weights are updated monthly; CPI weights are updated annually (Cleveland Fed).
• Source data: some PCE components are priced using PPI data rather than CPI, including physician, hospital and nursing-home services and airfares (BEA NIPA Handbook). BEA's 2026 annual update, released with the August 2026 data on 30th September, moves legal services to PPI data and stops deflating spending on portfolio management and investment advice with the PPI, deriving its quantity from BLS payroll (CES) data for the industry instead (BEA).

Since 2000, CPI inflation has averaged 0.39pp above PCE inflation, according to the Cleveland Fed as of December 2024 (Cleveland Fed), and J.P. Morgan Asset Management puts core PCE inflation 0.43pp below core CPI on average over the past 40 years (J.P. Morgan). The gap can reverse. In July 2026 core PCE was 3.3% Y/Y (BEA) and core CPI 2.5% (BLS), which J.P. Morgan described as the biggest positive gap in more than 40 years (J.P. Morgan). The CPI guide covers the CPI side.

Because PCE uses many CPI and PPI prices, economists publish estimates of core PCE as the CPI and PPI arrive, one to three weeks before PCE. Newsquawk headlines those estimates as they arrive, and the Cleveland Fed publishes daily model nowcasts of PCE inflation (Cleveland Fed). After the July 2026 CPI, Pantheon Macroeconomics estimated core PCE at 0.16% M/M, Oxford Economics at 0.2% and Goldman Sachs at 0.23% (Newsquawk).

Estimates of this kind have been close to the outcome. At the FOMC press conferences in January, March and April 2026, Chair Powell cited estimates of the latest month's PCE inflation, based on the CPI and, in March and April, other data, that matched the figures BEA later published (January, March, April). At the September 2026 press conference, Chair Warsh put August PCE inflation at around 3.6% and core at about 3.2%, ahead of the 30th September release (Federal Reserve).

What can still move the final figure:

• Components not taken directly from CPI or PPI: from the August 2026 data these include portfolio management and investment advice, which BEA no longer deflates with the PPI (BEA).
• Seasonal adjustment and revisions to earlier months.
• Methodology changes: the 2026 annual update revises data from the first quarter of 2021 as well as changing how several components are measured (BEA).

• After CPI and PPI: economists publish core PCE estimates, which feed into the consensus.
• 08:30:00 ET: headline and core PCE, M/M and Y/Y, are released with personal income and spending, at the same time as GDP. The desk headlines each figure and reads the key ones out on the audio squawk.
• After the release: the market compares the figures with the estimates and checks revisions to earlier months.

A recent example:

• 26th August 2026 (July data): headline PCE rose 3.7% Y/Y against 3.6% expected, while core was in line at 3.3% (BEA, Fox Business). The S&P 500 was little changed in early trading, and CME FedWatch put the probability of a September rate hike at 40.1%, up from 33.1% a week earlier (Fox Business). The Fed raised rates on 16th September (Federal Reserve); the FOMC guide covers the meeting itself.