What is The Difference Between PCE & CPI ?
PCE means Personal Consumption Expenditures and it is an inflation index that the United States Federal Reserve consults every month before making monetary policy decisions on interest rates.
CPI means Consumer Price Index and is also an inflation index consulted monthly by the U.S. Federal Reserve before deciding on interest rates.
KEY DIFFERENCES
1. Publishers
CPI is published by the U.S. Bureau of Labor Statistics (BLS)
PCE is published by the U.S. Bureau of Economic Analysis (BEA)
2. Scope
CPI focuses only on Out of Pocket Expenses paid for by U.S. consumers in urban areas.
PCE has a broader scope which covers both Out of Pocket Expenses paid for by U.S. consumers & Expenses paid on behalf of consumers for example Medicare. PCE also measures expenses paid for by Non Governmental Organizations catering to U.S. consumers.
Summary
Both PCE & CPI data have the power to move markets when they are released and forex traders should keep an eye on these reports when they are released every month.
Before the United States Federal reserve decides to lower or increase interest rates, they look at PCE data. So this means PCE data is a barometer for determining what the next interest rate decision will be in the U.S.
If PCE rises for the period under review it indicates increasing inflation. The Federal Reserve may choose to hike interest rates to curb the rising inflation & vice cersa