June Gloom: Clearing the Haze on CPI and PCE

Inflation in the US is reported using two main indexes, the Consumer Price Index (CPI) and the PCE Price Index. They measure similar things but are built differently, which means they can tell different stories. The Fed officially targets one; markets tend to react to the other. In this issue, we explain how each is constructed, how experts interpret them, and what the latest numbers say heading into the second half of 2026.

CPI measures the change in prices paid by urban consumers for a fixed basket of goods and services, published monthly by the Bureau of Labor Statistics. PCE measures the change in prices across all goods and services consumed by households, including those paid on their behalf, published monthly by the Bureau of Economic Analysis. Both indexes also have a "core" reading that removes food and energy prices, which tend to be volatile month to month, to better reflect the underlying inflation trend.

The two indexes differ in three key ways:

• Basket methodology - CPI is based on a fixed basket of goods and services that remains constant over time. PCE adjusts as consumer spending patterns change; if prices rise on one item and households shift to a cheaper alternative, PCE reflects that substitution, while CPI does not. This methodological difference is one reason PCE tends to read lower.
• Housing weight - Shelter costs represent roughly a third of the CPI but only about 15% of PCE. When rent and housing costs rise, the impact on CPI is proportionally larger.
• Scope - CPI is limited to direct out-of-pocket expenditures by consumers. PCE accounts for spending made on their behalf as well, including employer-paid healthcare.

As a result, PCE typically runs 0.3–0.5 percentage points below CPI.

The Federal Reserve officially targets core PCE at 2%. Policymakers favor the reading because it accounts for how households actually adjust their spending over time and captures a broader share of the economy.

Markets tend to react more to CPI, simply because it releases about two weeks earlier than PCE. Traders are conditioned to it, and a surprise in either direction can move bond yields and equity prices within minutes of the print.

Recent Readings

May's CPI came in at 4.2% year-over-year, the highest reading in three years¹. The headline number is notable, but energy prices account for most of the jump, rising 23.5% over the past year. Core CPI sits at 2.9%, a more moderate picture.

The most recent PCE data, covering April, tells a similar story with different magnitudes. Headline PCE was 3.8% year-over-year²; core PCE came in at 3.3%. The next meaningful data point arrives June 25, when the BEA releases May PCE. That print will be the first to pair directly with this month's CPI release and should clarify whether inflation pressure is spreading across more categories of the economy or concentrating in a narrower set of drivers like energy.

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Inflation is rarely one clean number and knowing which measure to watch, and why, makes the data easier to interpret when it releases. Subscribe to our Monthly Newsletter which include market news, as well as summaries of notable economic indicators.