Economy at a Glance - Inflation (PCE)
What is inflation?
Inflation is the rate at which the price of goods and services increases over time. Keeping inflation low and stable is one of the Federal Reserve's goals when conducting monetary policy.
How does the inflation rate factor into the Fed's policy decisions?
The Federal Reserve has a dual mandate to promote maximum employment and stable prices for the American people. Federal Reserve policymakers closely monitor the rate of inflation and adjust monetary policy to help steer the inflation rate toward its target while also continuing to promote the goal of maximum employment.
What is the Fed's inflation target?
The Federal Reserve seeks to achieve inflation at the rate of 2 percent over the longer run as measured by the annual change in the price index for personal consumption expenditures (PCE).
Why does the Fed target PCE inflation instead of the CPI?
To measure inflation across the entire economy, economists produce price indexes to see how overall prices for goods and services are changing. Two common price indexes are the consumer price index (CPI) and the personal consumption expenditures (PCE) price index. While the two are similar, the PCE index is constructed in a way that accounts for how Americans are spending their money at a given time and more quickly adapts to changes in spending patterns.
Related Information
What to know about prices and inflation (Bureau of Economic Analysis)
Quick Guide: Some Popular BEA Price Indexes (Bureau of Economic Analysis)