Difference Between CPI and PCE

Difference Between CPI and PCE

CPI is Consumer Price Index and PCE is Personal Consumption Expenditures. Both the CPI and the PCE are terms used for measuring consumer inflation. Although policy makers and economic analysts use the two terms, the Consumer Price Index is more known of the two.

PCE in simple words is the measure of the changes in price of consumer services and goods. PCE is measure of the actual as well as the imputed expenditures of a household. The Personal Consumption Expenditure is aimed mainly at individuals.

A primary indexing method, the CPI is a measure of the changes in the purchasing power of an average family. The Consumer Price Index inflation rate is determined by comparing the CPI of a current month with the CPI of the corresponding month during the previous year. The CPI mainly determines the changes in price in relation to the cost of living.

One of the differences that can be seen between the CPI and the PCE is that the former is based on Laspeyres formula and the latter is based on Fisher-Ideal formula.

Another difference is that the relative weights given to each of the item prices in the two indexes are based on different data sources. While the Consumer Price Index is based on household surveys, the Personal Consumption Expenditure is based on business surveys.

While the consumer Price Index measures all the out- of- the- pocket expenses of the entire Urban households, the Personal Consumption Expenditure deals with an individual’s or any non-profit institution’s expenditure on services and goods. This means that certain items included in the Consumer Price Index are not included in the Personal Consumption Expenditure and vice versa.

Summary

1. PCE in simple words is a measure of the changes in price of consumer services and goods. A primary indexing method, the CPI is a measure of the changes in the purchasing power of an average family.
2. The CPI is based on Laspeyres formula while PCE is based on Fisher-Ideal formula.
3. While the Consumer Price Index is based on household surveys, the Personal Consumption Expenditure is based on business surveys.
4. While the consumer Price Index measures all the out -of -the -pocket expenses of the entire Urban households, the Personal Consumption Expenditure deals with an individual’s or any non-profit institution’s expenditure on services and goods.

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