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Constructing a PCE-Weighted Consumer Price Index

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  • Caitlin Blair

Abstract

This study investigates the effects of simulating the Consumer Price Index (CPI) with alternately sourced weights on the inflation experience for an average US consumer. The Bureau of Labor Statistics currently uses household spending data from the Consumer Expenditure Survey (CE) to construct expenditure category weights, or "item" weights, in the CPI. The Bureau of Economic Analysis also estimates consumer expenditures, but does so at a national level for publication of Personal Consumption Expenditures (PCE) in the National Income and Product Accounts. In this paper, 2005-2010 price indexes that utilize PCE weights instead of CE expenditure weights are compared with the CPI-Urban in order to evaluate current CPI weighting methods. These comparisons show that the annualized growth rate over five years of an adjusted PCE-weighted CPI is slightly lower than that of the CPI-U, while a reweighted index that uses PCE expenditure definitions grows much more quickly than the CPI.

Suggested Citation

  • Caitlin Blair, 2013. "Constructing a PCE-Weighted Consumer Price Index," NBER Working Papers 19582, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19582
    Note: EFG LS PE TWP
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    References listed on IDEAS

    as
    1. 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.
    2. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
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    Cited by:

    1. Jonathan A. Parker & Nicholas S. Souleles & Christopher D. Carroll, 2014. "The Benefits of Panel Data in Consumer Expenditure Surveys," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 75-99, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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