The PCE inflation index refers to the Personal Consumption Expenditures price index, which is a way to measure inflation or changes in the overall price level of goods and services in an economy. Inflation is the rate at which prices increase over time, meaning you need to pay more for the same things.
The PCE inflation index looks explicitly at how prices change for the things people buy consume or use in their everyday lives. It considers a wide range of goods and services, such as food, housing, transportation, healthcare, and more.
The index compares the prices of these items over time. It starts with a base year and assigns a value to the basket of goods and services people typically buy during that year. Then, it tracks how the prices of those items change from year to year. By comparing these changes, it can tell us if prices are going up (inflation) or going down (deflation).
The PCE inflation index is widely used because it provides a comprehensive view of price changes and is considered a more accurate measure of inflation than other indices like the Consumer Price Index (CPI). It is often used by policymakers, economists, and businesses to monitor inflation and make decisions based on the trends in prices.