Two government price indexes dominate inflation coverage in the United States, and they do not always agree. This article explains how the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) price index are built, why the Federal Reserve favors one of them, and what the latest readings show.
Which inflation number does the Fed actually target?
Most headlines about inflation cite the CPI, which is published by the Bureau of Labor Statistics (BLS). The Federal Reserve, however, states its inflation goal in terms of a different measure. According to the Fed, the Federal Open Market Committee (the group that sets short-term interest rates) has affirmed that a 2 percent annual increase in the PCE price index is most consistent over the longer run with its mandate for maximum employment and stable prices.
The PCE index comes from the Bureau of Economic Analysis (BEA), part of the Department of Commerce. The Fed also says it watches other gauges, including the CPI and producer price indexes, because they cover different products and are calculated differently, so they can send different signals. For more on how the central bank turns these readings into decisions, see our explainer on how the Federal Reserve sets interest rates.
What does each index measure?
The BEA describes the PCE price index as reflecting changes in the prices of goods and services purchased by consumers in the United States. It is released monthly in the Personal Income and Outlays report, and quarterly and annual figures appear alongside the gross domestic product (GDP) release.
The BLS describes the CPI as tracking price changes for a representative basket of consumer goods and services. According to the BLS, the main version, CPI-U, covers more than 90 percent of the U.S. population: urban households in metropolitan areas and in urban places of 10,000 or more people. It excludes rural nonmetropolitan residents, farm households, military installations and institutional populations. It also leaves out income and Social Security taxes and investments such as stocks and real estate. Our guide to what the Consumer Price Index measures covers the basket in more detail.
How do the two indexes differ in design?
The BEA groups the differences between the two measures into effects, including formula, weight and scope. The table below summarizes the main ones as the agencies describe them.
| Feature | CPI (BLS) | PCE price index (BEA) |
|---|---|---|
| Whose spending | Out-of-pocket spending by households | Spending by and on behalf of the personal sector |
| Where weights come from | Consumer Expenditure Surveys of households | Business-side data, according to a BLS research paper |
| Formula | Modified Laspeyres, per the BEA | Fisher-Ideal, per the BEA |
| Published by | Bureau of Labor Statistics | Bureau of Economic Analysis |
The formula effect
A price index needs a rule for combining many price changes into one number. A Laspeyres index holds the basket’s weights fixed, while a Fisher-Ideal index lets weights change as spending patterns shift. According to the BEA, the PCE index uses the Fisher-Ideal formula and the CPI uses a modified Laspeyres formula. The BLS adds that since January 1999 most of the CPI’s basic indexes have used a geometric mean to average prices within item categories, which allows a modest amount of consumer substitution when relative prices change.
The weight effect
Weights decide how much each category counts. The CPI’s weights come from household surveys, which combine quarterly interviews with two-week spending diaries. The BLS notes a time lag: 2023 CPI weights, for example, were based on 2021 survey data. A BLS research paper says PCE weights draw on business data instead.
The scope effect
The BEA says PCE measures spending by and on behalf of consumers, while the CPI measures out-of-pocket spending. Health care is the clearest example. A BLS research paper explains that the CPI covers only consumers’ own medical spending, while PCE also counts spending made on their behalf, such as employer contributions to health coverage. Current category weights for each index are published in the agencies’ own tables.
What do the September 2026 readings show?
As of the latest releases, the two measures were close on the headline rate and apart on the core rate. Core inflation excludes food and energy, whose prices swing widely, and is often used to gauge underlying trends.
| Measure (12 months to September 2026) | All items | Excluding food and energy |
|---|---|---|
| CPI-U (BLS, released October 14, 2026) | 3.7% | 2.6% |
| PCE price index (BEA, released October 29, 2026) | 3.6% | 3.1% |
Illustrative arithmetic: the headline gap is 3.7 minus 3.6, or 0.1 percentage point, with CPI higher. The core gap is 3.1 minus 2.6, or 0.5 percentage point, with PCE higher. That is the reverse of the pattern many readers expect, in which PCE runs below CPI.
The BEA also reported that the PCE price index rose 0.5 percent from August to September, and the core PCE index rose 0.3 percent over the month. According to the BEA, the 12-month headline PCE rate was 3.4 percent in both July and August and 3.5 percent in June, and the core rate was 3.0 percent in each of June, July and August. The BEA’s next release is scheduled for November 25, 2026.
Why would core PCE run above core CPI?
The agencies’ published pages do not explain the 0.5-point core gap in this particular month, and this article does not attempt to. What the documentation does show is that the indexes are built differently, so any given month can produce different results. Categories that carry more weight in PCE, such as items bought on consumers’ behalf, can pull the PCE figure up when their prices climb. Categories that weigh more in the CPI can pull the CPI up when they accelerate. The Fed’s own guidance is that no single index tells the whole story.
Why does the choice of index matter outside the Fed?
The two indexes feed into different parts of the economy. The BLS notes that many contracts and government programs, including rental agreements and Social Security, are tied to inflation measures. Congress tied automatic annual Social Security increases to the CPI through a 1973 amendment, according to the BLS. The cost-of-living adjustment equals the percentage increase between the third-quarter average CPI-W (a subset of CPI-U covering about 30 percent of the population, mainly wage earners in certain occupations) and the previous peak third-quarter average.
So a shift in the CPI can change benefit checks and contract terms directly, while PCE shapes the central bank’s own judgment about whether policy is on track. A reader following both sets of numbers is following two different instruments, each built for a purpose.
How should a reader interpret a month of data?
A few habits help when new figures arrive:
- Compare like with like. Check that both numbers cover the same 12-month window, and note whether a figure is monthly or annual.
- Look at both headline and core. Headline rates include volatile food and energy prices. Core rates leave them out but are not a complete picture of what households pay.
- Remember rounding. The BEA reports figures to one decimal place, so small gaps can partly reflect rounding.
- Expect revisions and lags. Both agencies update their methods and weights over time, and survey-based weights lag actual spending patterns.
- Read the release itself. The BLS and BEA each publish detailed tables, and the Fed’s statements say which gauge it targets. Jobs data from the BLS add context, as covered in our guide to how to read the monthly jobs report.
Two gauges, one economy
The CPI and the PCE price index measure the same broad phenomenon with different tools. One is built from household surveys and anchored to out-of-pocket spending, the other draws on business data, covers spending made on consumers’ behalf and updates its weights as spending shifts. In September 2026, the two agreed closely on the headline rate and diverged on the core rate, which illustrates why economists and policymakers read several measures before drawing conclusions. What happens to either index next, and how the Fed responds, remains uncertain and is beyond what the published data can say.
This article is general information, not personalized financial, investment, tax or legal advice.
Sources: Bureau of Economic Analysis; Bureau of Labor Statistics; Federal Reserve Board
