Why does the Fed target PCE instead of CPI?

The FOMC adopted PCE in 2000 because its weights update continuously with actual spending and its scope covers all consumption, which it judged a better measure of the cost of living households actually face.

How big is the gap between CPI and PCE inflation?

PCE inflation has typically run about 0.3 percentage points below CPI inflation on average, though the gap widens when shelter or health care prices move sharply.

What is the difference between core and median CPI?

Core CPI always removes food and energy. Median CPI removes whichever components are most extreme in that particular month, so it is less distorted by one-off shocks in any category.

Is CPI revised after publication?

The unadjusted CPI is never revised. Seasonally adjusted CPI factors are recalculated each year, and PCE is revised regularly as source data improve.

CPI or PCE: measuring US inflation

The United States publishes two headline inflation measures. The Federal Reserve targets PCE, the public and most contracts follow CPI, and the gap between them has usually run a few tenths of a percentage point.

At a glance

Measure	Latest	Period	Published by	Frequency
Consumer Price Index (CPI), headline	334.13	Aug 2026	Bureau of Labor Statistics	Monthly
Core CPI (excluding food and energy)	337.77	Aug 2026	Bureau of Labor Statistics	Monthly
PCE price index, headline	131.66	Jul 2026	Bureau of Economic Analysis	Monthly
Core PCE (excluding food and energy)	130.66	Jul 2026	Bureau of Economic Analysis	Monthly
Median CPI (Cleveland Fed)	2.58%	Aug 2026	Federal Reserve Bank of Cleveland	Monthly
Sticky CPI (Atlanta Fed)	2.7%	Aug 2026	Federal Reserve Bank of Atlanta	Monthly

How each one is built

Consumer Price Index (CPI), headline: Method: Fixed basket of goods and services, weights updated annually; Covers: Out-of-pocket spending by urban consumers, about 93% of the population; Released: About 2 weeks after the reference month
Core CPI (excluding food and energy): Method: CPI basket with food and energy removed; Covers: Same population as CPI; Released: With the CPI release
PCE price index, headline: Method: Chain-weighted index; weights change every month with actual spending; Covers: All consumption, including what employers and government pay on households’ behalf; Released: About 4 weeks after the reference month
Core PCE (excluding food and energy): Method: PCE with food and energy removed — the measure the FOMC targets at 2%; Covers: Same as PCE; Released: With the PCE release
Median CPI (Cleveland Fed): Method: The price change at the middle of the distribution of all components; Covers: CPI components, reweighted; Released: Same day as CPI
Sticky CPI (Atlanta Fed): Method: CPI components whose prices change less than once every 4.3 months; Covers: CPI components, split by how often prices change; Released: Shortly after CPI

Four reasons CPI and PCE differ

The formula differs: PCE is chain-weighted and updates spending weights every month, so it captures substitution when shoppers switch to a cheaper product. CPI holds weights fixed for a year. This alone makes PCE run a little below CPI.

The scope differs: PCE counts spending made on households’ behalf, most importantly employer-paid and government-paid health care. Health care is therefore about three times more important in PCE than in CPI.

The weights differ: shelter is roughly a third of CPI but under a fifth of PCE, so a housing-driven inflation episode shows up much more strongly in CPI.

The sources differ: CPI weights come from a household survey, PCE weights from business surveys, and PCE is revised while CPI is not.

Which one to use

Use core PCE to read Federal Reserve policy: it is the measure named in the FOMC’s 2% target and the one in its projections.

Use CPI for anything indexed to inflation — Social Security cost-of-living adjustments, TIPS, many rental and wage contracts are written against CPI, not PCE.

Use median or trimmed-mean CPI when a single volatile component is distorting the picture. Core inflation removes food and energy whatever they are doing; median CPI removes whichever categories happen to be extreme that month, which is a better guide to underlying trend in a supply-shock episode.

Frequently asked questions

Why does the Fed target PCE instead of CPI?: The FOMC adopted PCE in 2000 because its weights update continuously with actual spending and its scope covers all consumption, which it judged a better measure of the cost of living households actually face.
How big is the gap between CPI and PCE inflation?: PCE inflation has typically run about 0.3 percentage points below CPI inflation on average, though the gap widens when shelter or health care prices move sharply.
What is the difference between core and median CPI?: Core CPI always removes food and energy. Median CPI removes whichever components are most extreme in that particular month, so it is less distorted by one-off shocks in any category.
Is CPI revised after publication?: The unadjusted CPI is never revised. Seasonally adjusted CPI factors are recalculated each year, and PCE is revised regularly as source data improve.