Core PCE is the personal consumption expenditures price index, published by the US Bureau of Economic Analysis, with volatile food and energy prices stripped out. The Federal Reserve prefers it to the better-known consumer price index because it covers more of what households actually spend, updates its weights more often, and tends to be steadier month to month. The Fed's 2% inflation goal is defined in PCE terms, which is why this gauge, not CPI, is the one that most directly shapes interest-rate policy.

What core PCE actually measures

The PCE price index tracks the prices of the goods and services American households consume, from groceries and rent to health care and haircuts. The "core" version removes food and energy, because those two categories move sharply from month to month for reasons that have little to do with the underlying trend in inflation: a cold snap, an oil shock, a supply disruption. Removing them gives a cleaner read on where prices are heading once the noise is taken out. The BEA releases the data monthly, usually near the end of the month, as part of its personal income and outlays report.

Why the Fed prefers it to CPI

Most people have heard of the consumer price index, which the Bureau of Labor Statistics publishes and which sets cost-of-living adjustments for Social Security and many contracts. The Fed watches CPI too, but its formal target is written in PCE terms. There are three practical reasons.

First, scope. PCE counts a broader set of spending than CPI, including costs paid on a household's behalf, such as the portion of medical bills covered by employers and government programs. Second, weights. PCE updates how much each category counts more frequently, so it reflects how people shift their spending as prices change, for example buying more chicken when beef gets expensive. CPI has traditionally held its basket weights fixed for longer, which can overstate inflation. Third, steadiness. Core PCE tends to be less volatile than core CPI, and a central bank setting policy for the medium term wants the signal, not the noise. Historically core CPI has read higher than core PCE most of the time, by roughly half a percentage point on average, though the gap varies. For the basics of how inflation works across an economy, see what inflation is.

Where core PCE stands now

In the most recent official reading, for August 2026, core PCE increased 0.2% on the month and 3.0% over the prior 12 months, according to the BEA release of September 30, 2026. Headline PCE, which includes food and energy, was higher, up 0.3% on the month and 3.4% over the year. Both sit above the Fed's 2% goal, core by about a full percentage point and headline by more.

That gap is the heart of the current policy debate. Inflation has come down a long way from its 2022 peak but has settled above target rather than returning to 2%. Fed governor Michael Barr said in a September 29, 2026 speech that he did not see a clear trend toward a timely return to 2% inflation. The September PCE report is scheduled for October 29, 2026.

How it differs from CPI, in plain terms

Think of CPI as a fixed shopping cart priced each month, and PCE as a cart that is allowed to change as shoppers swap items when prices move. CPI answers the question, what does last year's basket cost now; PCE answers, what are people actually spending now. Neither is wrong; they answer slightly different questions. For a household budgeting around the cost of living, CPI is the more familiar yardstick. For a central bank deciding whether policy is tight enough, PCE is the preferred one. The two usually tell a similar story, and when they diverge the difference is normally small.

One more practical point: always separate the monthly change from the 12-month change. A single month at 0.2% or 0.3% can look alarming or reassuring on its own, but the Fed and most economists focus on the annual rate and on the trend across several months, because one month is easily skewed by a quirk in a single category. The August 2026 readings, 0.2% on the month and 3.0% over the year for core, are best read together rather than in isolation.

Why the gap matters for rates

Because the Fed's target is set in PCE terms, the distance between core PCE and 2% is a direct input into whether policymakers judge their job done. With core PCE at 3.0% in August 2026, the Fed has held its policy rate in a range of 3.75% to 4.00% after a quarter-point increase on September 16, 2026, and markets widely expect it to hold that range at its October 28 meeting, according to a Reuters poll of economists. Reporting what the data shows is the job here; what the Fed does next is its decision to explain, and this page does not forecast it. For how the central bank uses these readings, see how the Federal Reserve works.

The bottom line

Core PCE is the inflation number to watch if you want to understand Fed policy, because it is the gauge the 2% target is built on. CPI is the figure that touches your cost-of-living adjustments and is easier to find. Knowing which one is being quoted, and that core strips out food and energy, is enough to read almost any inflation headline correctly.