CPI AND PCE: PAST AND PRESENT By: Amanda Sanfilippo
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he Consumer Price Index (CPI) represents the average of the prices consumers pay for certain items such as food, energy, and medical care (U.S. Bureau of Labor Statistics, n.d.c). Personal Consumption Expenditure (PCE), the preferred method used by the Fed when formulating its policies, is a measure of prices paid for durable and nondurable goods as well as other services related to food and energy (U.S. Bureau of Economic Analysis, n.d.). Both indices focus on changes in national consumer spending and inflation. Rather than focus on one particular item, this is an overview of all the possible elements included in either index. Coinciding with the World Health Organization’s declaration of the COVID-19 pandemic and the lockdowns back in March of 2020, both CPI and PCE experienced negative percent changes month to month (AJMC, 2021). However, we have experienced a dramatic increase in these indices as we approach the end of 2021. The latest update for CPI came in October, when one of the largest increases of the year occurred. Seasonally adjusted, this marks a 0.9 percent increase from September. As seen in Figure 7, not seasonally adjusted, it has risen to 6.2 percent over the past 12 months. More recently reported data have shown an even further increase to 6.8 percent. In fact, according to CNBC, the last time this index increased at such a rapid pace was more than 30 years ago — of course, three decades ago, consumers were not slowly recovering from an ongoing pandemic. For the most part, rising spending on energy, shelter, and vehicles has caused the recent steep rate. This is a slight change from back in August, when the biggest culprits were food and energy (Cox, 2021). The Biden administration is aware of rising inflation concerns; however, the president appears to be relying on the Fed to take care of it (Smialek, 2021) while his Build Back Better legislation is stalled in Congress.
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CONNECTICUT ECONOMIC ACTIVITY REPORT • WINTER 2022
Figure 7: CPI 12 Month Percent Change (NSA) Source: Bureau of Labor Statistics
Figure 8: Monthly Percent Change of CPI & PCE Source: BLS & BEA
The Bureau of Economic Analysis update for October was a percent change of 0.6 from the previous month. Although still high and a cause of concern among consumers, the change is actually lower than most economists expected (Winck, 2021). The last update from September was a 0.4 percent change: the same as CPI. The disparity between PCE and CPI values is due to the way the values are collected — via business surveys (Liberto, 2021). The percent changes throughout the past nine months have not been fluctuating as wildly as we have seen from the CPI. Last spring, it was observed that consumers were purchasing more goods overall (U.S. Bureau of Economic Analysis, 2021). This uptick may be the result of pent-up demand, stimulus payments and other fiscal measures, and the availability and public administration of vaccines.
