What Really Goes Into the Fed's Favorite Measure of Inflation?
Odd Lots
Bloomberg
4.5 • 2K Ratings
🗓️ 29 February 2024
⏱️ 55 minutes
🧾️ Download transcript
Summary
The Federal Reserve has a goal of getting inflation down to 2%. But of course, there are a lot of different ways of measuring inflation. Many people know about the Consumer Price Index, and the various ways it can be sliced and diced. The Fed, however, focuses on a different index — Personal Consumption Expenditure — which differs from the CPI in a number of ways, both in terms of category weightings and methodological approaches. So why are there different measures of inflation? Why does the Fed prefer PCE? And how is PCE actually assembled? On this episode, we speak with Omair Sharif, founder and president of Inflation Insights, as well as Skanda Amarnath, executive director of Employ America. We explore these two different measures, the approaches for calculating them, and the weird quirks underneath the surface that makes them all so interesting and controversial.
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| 1:26.0 | And I'm Tracy Allaway. |
| 1:27.0 | Tracy, you know, it's funny, there's all this talk about, okay, when is the, when is inflation going to get back down to 2% when is the |
| 1:34.7 | Fed going to hit its goals but when we talk about inflation there's a million |
| 1:38.9 | ways to measure that or at least two or three big ones yeah this is one of the things that I've really |
| 1:43.8 | come to appreciate over time. There are so many different flavors of |
| 1:48.0 | inflation, so many different ways of measuring it. My understanding is that there's basically, if you're going to break it down, there's |
| 1:55.5 | CPI, there's PCE, there's core and super core of each of those, and the way to do it is just choose |
| 2:02.2 | whichever one of those |
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