Question

In 2012, the Federal Reserve announced an inflation objective of 2 percent “over the longer run” for the price index of personal consumption expenditures (FRED code: PCEPI). However, many analysts focus on the “core” price index (FRED code: PCEPILFE), which omits the volatile food and energy components. For the Fed’s horizon, does this difference matter? Plot the percent change from a year ago for both inflation measures since 2000. Download the data and compute the averages and standard deviations over that period. What do you conclude?

Answer 1

It shall be noted that for the Fed's horizon, the difference between PCEPI and PCEPILFE matters. That is why Fed maintains these two different price indexes.

The average Y-o-Y % Change for PCEPI is 1,82% for the period 01JAN2000 to 01APR2020 and average Y-o-Y % Change for PCEPILFE is 1,72% for the period 01JAN2000 to 01APR2020

The standard deviation is 0.94% for Y-o-Y % Change for PCEPI and 0.35% for Y-o-Y % Change for PCEPILFE, each for the period 01JAN2000 to 01APR2020

Thus, it can be concluded that there is a high degree of variability in Food and Energy price changes over time that cause a high degree of variability in the Price Index for Personal Consumption Expenditure.

If Food & Energy is excluded from the Personal Consumption Expenditure basket, the variability of price change is lowered.

observation_date	PCEPI (Personal Consumption Expenditures: Chain-type Price Index, Index 2012=100, Monthly, Seasonally Adjusted)	PCEPILFE (Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index), Index 2012=100, Monthly, Seasonally Adjusted)	Y-o-Y PCEPI (%Change)	Y-o-Y PCEPILFE (%Change)
1999-01-01	75.705	78.998
1999-02-01	75.687	78.999
1999-03-01	75.746	79.026
1999-04-01	76.096	79.210
1999-05-01	76.134	79.272
1999-06-01	76.150	79.306
1999-07-01	76.352	79.446
1999-08-01	76.486	79.480
1999-09-01	76.754	79.683
1999-10-01	76.876	79.809
1999-11-01	76.943	79.884
1999-12-01	77.128	79.992
2000-01-01	77.348	80.196	2.17%	1.52%
2000-02-01	77.597	80.321	2.52%	1.67%
2000-03-01	77.928	80.483	2.88%	1.84%
2000-04-01	77.851	80.522	2.31%	1.66%
2000-05-01	77.906	80.597	2.33%	1.67%
2000-06-01	78.161	80.647	2.64%	1.69%
2000-07-01	78.349	80.823	2.62%	1.73%
2000-08-01	78.340	80.921	2.42%	1.81%
2000-09-01	78.676	81.116	2.50%	1.80%
2000-10-01	78.787	81.234	2.49%	1.79%
2000-11-01	78.888	81.367	2.53%	1.86%
2000-12-01	78.991	81.425	2.42%	1.79%
2001-01-01	79.348	81.698	2.59%	1.87%
2001-02-01	79.458	81.827	2.40%	1.87%
2001-03-01	79.462	81.909	1.97%	1.77%
2001-04-01	79.605	82.044	2.25%	1.89%
2001-05-01	79.818	82.067	2.45%	1.82%
2001-06-01	79.962	82.253	2.30%	1.99%
2001-07-01	79.935	82.465	2.02%	2.03%
2001-08-01	79.929	82.511	2.03%	1.96%
2001-09-01	79.663	82.049	1.25%	1.15%
2001-10-01	79.952	82.637	1.48%	1.73%
2001-11-01	79.903	82.810	1.29%	1.77%
2001-12-01	79.819	82.829	1.05%	1.72%
2002-01-01	79.879	82.862	0.67%	1.42%
2002-02-01	80.011	83.017	0.70%	1.45%
2002-03-01	80.233	83.120	0.97%	1.48%
2002-04-01	80.580	83.366	1.22%	1.61%
2002-05-01	80.637	83.465	1.03%	1.70%
2002-06-01	80.735	83.594	0.97%	1.63%
2002-07-01	80.897	83.745	1.20%	1.55%
2002-08-01	81.048	83.900	1.40%	1.68%
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2019-06-01	109.653	111.648	1.36%	1.61%
2019-07-01	109.909	111.878	1.44%	1.65%
2019-08-01	109.938	112.027	1.43%	1.76%
2019-09-01	109.935	112.085	1.33%	1.66%
2019-10-01	110.141	112.227	1.32%	1.65%
2019-11-01	110.232	112.288	1.34%	1.51%
2019-12-01	110.530	112.550	1.56%	1.57%
2020-01-01	110.678	112.725	1.78%	1.69%
2020-02-01	110.763	112.886	1.77%	1.80%
2020-03-01	110.510	112.834	1.33%	1.69%
2020-04-01	109.990	112.390	0.54%	1.04%