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Why Are Headline PCE and Median PCE Inflations So Far Apart?

Author

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  • Daniel R. Carroll
  • Ross Cohen-Kristiansen

Abstract

Mean (or headline) PCE inflation has typically fallen below median PCE inflation, and since 2012 the difference has been large. To understand the reasons for this trend, we investigate which components of the headline measure are contributing to the difference. We find that energy components, which frequently undergo wide price swings, and electronics, which have been steadily decreasing in price for decades, explain most of the difference between the two inflation measures. We argue that the outsized impacts of such components on headline PCE inflation reinforce the need for policymakers to consider both headline and median PCE inflation measures.

Suggested Citation

  • Daniel R. Carroll & Ross Cohen-Kristiansen, 2020. "Why Are Headline PCE and Median PCE Inflations So Far Apart?," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2020(24), pages 1-6, October.
    • Handle: RePEc:fip:fedcec:88825
    DOI: 10.26509/frbc-ec-202024
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    File URL: https://doi.org/10.26509/frbc-ec-202024
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    References listed on IDEAS

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    1. Michael F. Bryan & Christopher J. Pike, 1991. "Median price changes: an alternative approach to measuring current monetary inflation," Economic Commentary, Federal Reserve Bank of Cleveland, issue Dec.
    2. Michael F. Bryan & Stephen G. Cecchetti, 1993. "The consumer price index as a measure of inflation," Economic Review, Federal Reserve Bank of Cleveland, vol. 29(Q IV), pages 15-24.
    3. Daniel R. Carroll & Randal Verbrugge, 2019. "Behavior of a New Median PCE Measure: A Tale of Tails," Economic Commentary, Federal Reserve Bank of Cleveland, issue July.
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    Keywords

    inflation; measurement;

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