Is Inflation Cooling or Stubbornly High? Both Can Be True.
As energy prices rise, the inflation picture is muddied by an unusual divergence between two key gauges of consumer costs
By Matt Grossman, The Wall Street Journal, March 9, 2026
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Two key inflation measures are telling opposite stories about where inflation is headed.
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The 12-month CPI was 2.4% in January, while the Fed’s preferred PCE was 2.9% in December, above its 2% target.
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The gap between CPI and PCE is largely due to differing weights for housing and healthcare.
The two indexes measure inflation differently. The CPI is based on a survey of what households pay for. The PCE is based on everything households consume even if they don’t pay for it, such as healthcare…
Because of their differing methodology, CPI and PCE weight spending categories differently. Shelter—housing, rent and hotels—makes up a staggering 45% of the core CPI. Because the PCE captures spending on consumers’ behalf—most notably health costs shouldered by employer-paid insurance or the government—it assigns a larger weight to healthcare, pushing down that of housing. …
If PCE inflation falls toward the more benign CPI level in coming months, cutting rates would be a straightforward choice for the Fed, especially if the weak February jobs report released Friday previews more labor-market trouble ahead. But if CPI inflation rises toward the PCE’s more troubling reading even as unemployment increases, the Fed may be left without good options…[end quote]
CPI directly impacts TIPS yields and also the inflation adjustment for Social Security. The Fed places more confidence in PCE than TIPS.
I always post links to Federal Reserve analyses of inflation though not usually to all of them. Every household will have a different inflation rate depending on the mix of products and services.
Wendy