The Fed's favorite inflation measure is more accurate than CPI. It's also slower

Consumers are expecting inflation will rise this year, and we’ll see if and how much it has risen so far later this week, when we get both the personal consumption expenditures index and the consumer price index.

The PCE will be based on February data, but the CPI will be from March. That lag matters, especially in a moment of volatility, like this one.

Collecting data for the consumer price index is pretty straightforward, if time consuming. Economists go to stores, make phone calls, and scour the web to check prices on thousands of items and services.

“The PCE price index is more complicated,” said Bill English at the Yale School of Management.

He said that’s because it’s not just looking at the prices consumers pay. “For example, for medical care, the CPI just picks up your co-pay — that’s your out-of-pocket expense when you go to the doctor. The PCE index has to capture all of the costs paid by your insurance company or the government,” he said.

Getting that data from companies and the government can take a little while. PCE also includes price data from CPI, so it comes out later by design.

“We get this lag, but we also get this quality right?” said Amy Guisinger at Lafayette College.

She said quality is important.

“The more information we have sooner is better, right? The Fed wants the information to make decisions. And what we have here is this, like, tug and pull between being fast and being kind of comprehensive,” Guisinger said.

So CPI is faster and PCE is more comprehensive. But Carola Binder at the University of Texas at Austin said having both — along with private data — is helpful.

“If you have a lot of different inflation measures, they're all a little bit noisy. You're looking for that trend that they're all sharing, and that's going to give you a better idea of what that kind of true underlying inflation is doing,” she said.

Getting a good idea of what inflation is doing in real time is particularly important in volatile moments, like now, with a war and rising oil prices.

But Binder said it’s hard.

“You kind of think, ‘Well, we know what's going on in the economy right now, the hard thing is predicting the future,’ but it's actually hard to know what's going on right now,” she said.

The more datasets you have, though, the closer you can get.