Core CPI vs Core PCE
Core measures strip out food and energy — the two most volatile CPI and PCE components — to reveal the underlying inflation trend. Core PCE is the Fed's single most-watched inflation gauge.
- Core CPI
- Core PCE
Stripping food and energy removes the short-run noise that can push headline inflation around without reflecting persistent price pressure. A summer oil spike or a frost-hit harvest hits headline numbers hard but doesn't signal durable inflation, so economists and policymakers watch core measures for the signal.
The differences between core CPI and core PCE mirror the differences between the headline indexes. Core PCE's healthcare weight is roughly double core CPI's; core CPI's shelter weight is roughly double core PCE's. The Fed explicitly targets 2% core PCE inflation. When the two measures tell different stories — as they did in 2023, with core CPI stubbornly elevated while core PCE cooled faster — the Fed weights core PCE more heavily because that is what its 2% rule book references.
Frequently asked questions
Why don't the Fed and the media focus on the same inflation measure?
Media outlets cover CPI because it is published first and is used for Social Security cost-of-living adjustments. The Fed targets PCE because its broader scope and chain-weighted methodology give what the FOMC considers a more reliable signal of underlying inflation.
How long has core PCE been the Fed's target?
The FOMC formally adopted a 2% inflation target defined in terms of PCE in January 2012, though the Fed had cited PCE as its preferred gauge for years before that.
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