Inflation: Measuring Price Changes This DataPost tutorial looks at the Fed’s key measure of inflation—the Personal Consumption Expenditures Price Index—including how it relates to the concepts of "core" and "total" inflation in the U.S. economy.

1. Federal Reserve Bank of San Francisco
Economic Education
Inflation
Measuring Price Changes
Date last updated: September 14, 2020
DATAPOST

2. Inflation – Did You Know?
Relative
• Inflation is a general increase in the relative
price level between two time periods
• The price index chart to the right demonstrates
one measure of this increase since 1980
Measures
Relationship
• 2% increase in prices, year to year, is
considered stable by the Fed
• The PCEPI is the Fed’s preferred measure of
inflation
41.3
63.4
78.2
95.7
20
40
60
80
100
120
1980 1990 2000 2010
Personal Consumption
Expenditures Price Index (PCEPI)
(Annual average for years shown, 2012=100)
Since 1980 prices have been
increasing. Compared to 1980,
consumers in 2010 were paying
132% more on average, according
to the PCEPI.
Source: Bureau of Economic Analysis
There are different measures of price levels:
• Consumer Price Index (CPI)
• Producer Price Index (PPI)
• Personal Consumption Expenditures Price Index
(PCEPI)
www.frbsf.org/education/teacher-resources/datapost FRBSF Economic EducationDATAPOST

3. Measures of Price Levels
Consumer Price
Index (CPI)
Change in the
prices paid by
urban
consumers for a
representative
basket of goods
and services
Producer Price
Index (PPI)
Average change
over time in the
selling prices
received by
domestic
producers for
their output
GDP Price Index
Measure of the
level of prices of
all new,
domestically
produced, final
goods and
services in the
economy
Personal
Consumption
Expenditures Price
Index (PCEPI)
Measures the
prices paid for
goods and
services
purchased by
U.S. residents
Sources: Bureau of Labor Statistics and Bureau of Economic Analysis
Note: See PowerPoint file for references
Fed’s Preferred
Measure
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4. 94.1
109.9
0
20
40
60
80
100
120
2009 2019
PCEPI Levels
(Annual average for years shown, 2012=100)
(109.9 – 94.1) x 100
94.1 = 16.7%
This means that consumers were
paying, on average, 16.7% more in
2019 for the same items as in 2009.
Using the PCEPI
(Personal Consumption Expenditures Price Index)
Source: Bureau of Economic Analysis
(Current Price – Past Price) x 100
Past Price
What is the percentage change in
prices for all domestic personal
consumption?
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5. -2%
-1%
0%
1%
2%
3%
4%
5%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Bureau of Economic Analysis & FRBSF Calculations
Personal Consumption Expenditures (PCE) Inflation
12-month Percent Change, Seasonally Adjusted through July 2020
CORE
TOTAL
www.frbsf.org/education/teacher-resources/datapost FRBSF Economic EducationDATAPOST

6. -2%
-1%
0%
1%
2%
3%
4%
5%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Bureau of Economic Analysis & FRBSF Calculations
CORE
TOTAL
Annotated Chart Notes
Personal Consumption Expenditures (PCE) Inflation
12-month Percent Change, Seasonally Adjusted through July 2020
CORE – excludes food and
energy prices, which are
typically more volatile
TOTAL – Includes all expenditures
(a.k.a. “Headline Inflation”)
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7. What Do You Think?
1. What is the Federal Reserve’s preferred measure
of inflation in making monetary policy decisions?
2. What was headline inflation in June 2009? Core
inflation in October 2013?
3. How would you describe the changes in headline
inflation during the 2007-2009 Great Recession?
4. What do you notice about the overall trend in
“headline” inflation compared to “core”?
www.frbsf.org/education/teacher-resources/datapost FRBSF Economic EducationDATAPOST