IDEAS home Printed from https://ideas.repec.org/a/fip/fedcec/87552.html
   My bibliography  Save this article

The CPI–PCEPI Inflation Differential: Causes and Prospects

Author

Listed:
  • Carola Binder
  • Wesley Janson
  • Randal J. Verbrugge

Abstract

The Federal Open Market Committee’s inflation target is stated in terms of the personal consumption expenditures price index (PCEPI). The PCEPI, like the consumer price index (CPI), measures inflation in the expenditures of households, but these indexes differ in purpose, scope, and construction. Notably, since the CPI is used as the reference rate for numerous financial contracts, one can derive implied longer-run CPI inflation forecasts from financial contracts. Such forecasts are widely reported. But if policymakers are to use these forecasts to guide their pursuit of the inflation target, they need to translate these CPI inflation forecasts into corresponding implied PCEPI forecasts. Since 1978, CPI inflation has averaged 0.3 percentage points above PCEPI inflation, but this differential has varied significantly over time. In this Commentary, we explain why, investigate a key historical episode, and provide an updated estimate of the likely differential going forward.

Suggested Citation

  • Carola Binder & Wesley Janson & Randal J. Verbrugge, 2020. "The CPI–PCEPI Inflation Differential: Causes and Prospects," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(06), pages 1-8, March.
    • Handle: RePEc:fip:fedcec:87552
    DOI: 10.26509/frbc-ec-202006
    as

    Download full text from publisher

    File URL: https://doi.org/10.26509/frbc-ec-202006
    File Function: Full Text
    Download Restriction: no
    File URL: https://libkey.io/10.26509/frbc-ec-202006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Craig S. Hakkio, 2008. "PCE and CPI inflation differentials: converting inflation forecasts," Economic Review, Federal Reserve Bank of Kansas City, vol. 93(Q I), pages 51-68.
    2. Clinton P. McCully & Brian C. Moyer & Kenneth J. Stewart, 2007. "A Reconciliation between the Consumer Price Index and the Personal Consumption Expenditures Price Index," BEA Papers 0079, Bureau of Economic Analysis.
    3. W. Erwin Diewert, 2009. "Durables and Owner-Occupied Housing in a Consumer Price Index," NBER Chapters, in: Price Index Concepts and Measurement, pages 445-500, National Bureau of Economic Research, Inc.
    4. W. Erwin Diewert & John S. Greenlees & Charles R. Hulten, 2009. "Price Index Concepts and Measurement," NBER Books, National Bureau of Economic Research, Inc, number diew08-1, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Garrido-Yserte, Rubén & Mañas-Alcón, Elena & Gallo-Rivera, Maria Teresa, 2012. "Housing and cost of living: Application to the Spanish regions," Journal of Housing Economics, Elsevier, vol. 21(3), pages 246-255.
    2. Carlos Felipe Balcázar & Lidia Ceriani & Sergio Olivieri & Marco Ranzani, 2017. "Rent‐Imputation for Welfare Measurement: A Review of Methodologies and Empirical Findings," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 881-898, December.
    3. Robert J. Hill & Norbert Pfeifer & Miriam Steurer & Radoslaw Trojanek, 2021. "Warning: Some Transaction Prices can be Detrimental to your House Price Index," Graz Economics Papers 2021-11, University of Graz, Department of Economics.
    4. Bettina H. Aten, 2017. "Rental equivalence estimates of national and regional housing expenditures," BEA Working Papers 0142, Bureau of Economic Analysis.
    5. Ambrose, Brent W. & Coulson, N. Edward & Yoshida, Jiro, 2017. "Inflation Rates Are Very Different When Housing Rents Are Accurately Measured," HIT-REFINED Working Paper Series 71, Institute of Economic Research, Hitotsubashi University.
    6. Charles Courtemanche & Art Carden, 2014. "Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices," Southern Economic Journal, John Wiley & Sons, vol. 80(3), pages 565-585, January.
    7. Jacob Greenspon & Anna Stansbury & Lawrence H. Summers, 2021. "Productivity and Pay in the United States and Canada," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 3-30, Fall.
    8. Silver Mick, 2022. "Econometric Issues in Hedonic Property Price Indices: Some Practical Help," Journal of Official Statistics, Sciendo, vol. 38(1), pages 153-186, March.
    9. Hans Wolfgang Brachinger & Michael Beer & Olivier Schöni, 2018. "A formal framework for hedonic elementary price indices," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 102(1), pages 67-93, January.
    10. Caitlin Blair, 2013. "Constructing a PCE-Weighted Consumer Price Index," NBER Working Papers 19582, National Bureau of Economic Research, Inc.
    11. Nicholas Oulton, 2018. "GDP and the System of National Accounts: Past, Present and Future," Discussion Papers 1802, Centre for Macroeconomics (CFM), revised Jun 2018.
    12. Robert J. Hill & Michael Scholz & Chihiro Shimizu & Miriam Steurer, 2018. "An evaluation of the methods used by European countries to compute their official house price Indices," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 500-501-5, pages 221-238.
    13. repec:grz:wpaper:2012-07 is not listed on IDEAS
    14. Gaddis,Isis, 2016. "Prices for poverty analysis in Africa," Policy Research Working Paper Series 7652, The World Bank.
    15. Mugera, Amin W. & Langemeier, Michael R. & Featherstone, Allen M., 2012. "Labor Productivity Growth in the Kansas Farm Sector: A Tripartite Decomposition Using a Non-Parametric Approach," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), pages 1-15, December.
    16. Wolfgang Nierhaus & Timo Wollmershäuser, 2016. "ifo Konjunkturumfragen und Konjunkturanalyse: Band II," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 72, July.
    17. Olivier Coibion & Yuriy Gorodnichenko & Gee Hee Hong, 2015. "The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications," American Economic Review, American Economic Association, vol. 105(3), pages 993-1029, March.
    18. Courtemanche, Charles & Carden, Art, 2011. "Supersizing supercenters? The impact of Walmart Supercenters on body mass index and obesity," Journal of Urban Economics, Elsevier, vol. 69(2), pages 165-181, March.
    19. Nicholas Oulton, 2012. "Hooray for GDP!," CentrePiece - The magazine for economic performance 383, Centre for Economic Performance, LSE.
    20. Cordeiro De Noronha Pessoa, Joao Paulo & Van Reenen, John, 2013. "Decoupling of wage growth and productivity growth? Myth and reality," LSE Research Online Documents on Economics 121790, London School of Economics and Political Science, LSE Library.
    21. John Sabelhaus & David Johnson & Stephen Ash & David Swanson & Thesia I. Garner & John Greenlees & Steve Henderson, 2014. "Is the Consumer Expenditure Survey Representative by Income?," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 241-262, National Bureau of Economic Research, Inc.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedcec:87552. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: 4D Library (email available below). General contact details of provider: https://edirc.repec.org/data/frbclus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.