A Guide to the Alphabet Soup of CPI, PPI, PCE and More
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IN BRIEF Not all inflation reports measure the same thing. CPI measures prices paid by consumers, PPI measures prices received by producers, and PCE measures a broader range of household consumption. • “Core” measures remove food and energy. Core CPI and Core PCE help look through two categories that can be particularly volatile from month to month. • Different measures can send different signals without contradicting one another. They use different baskets, weights and methodologies. • Markets are reacting by repricing interest-rate expectations. Recent inflation reports have contributed to higher Treasury yields and shifting expectations for Federal Reserve policy, although inflation is only one of several forces currently moving bond markets. |
Dear Investors and Friends,
A note to readers: This month’s letter includes A Plain-English Guide to Inflation Data following the main commentary. It explains the major inflation measures, why they differ, and how to interpret the monthly headlines.
If you have followed the economic news recently, you could be forgiven for wondering whether inflation is getting better, getting worse, or somehow doing both at the same time.
On September 10, the Producer Price Index, or PPI, showed prices rising 0.4% in August and 5.4% over the prior twelve months. One day later, the Consumer Price Index, or CPI, also showed a 0.4% monthly increase - but a considerably lower 3.4% increase over the prior year. Core CPI, which removes food and energy, was up 2.4%.
Meanwhile, the latest Personal Consumption Expenditures price index, or PCE, is available only through July. It showed headline inflation of 3.7% and Core PCE inflation of 3.3% over the prior year. August PCE will not be released until September 30.
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So which number is the “right” inflation number? There is not one. These reports are not competing attempts to answer exactly the same question. They measure different parts of the inflation picture. |
The Inflation Alphabet Soup
Five related measures - each answering a slightly different question.
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CPI |
CORE CPI |
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PCE |
CORE PCE |
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PPI |
THE BIG IDEA |
Sources: U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; Board of Governors of the Federal Reserve System.
Why the numbers can look so different
The latest reports provide a useful example. August PPI rose 5.4% from a year earlier. That sounds very different from the 3.4% increase in CPI and 2.4% increase in Core CPI. But producer prices are not consumer prices. Higher costs somewhere in the production chain do not necessarily flow through immediately - or completely - to the price ultimately paid by a household.
The composition of the indexes matters as well. In August, PPI for goods rose 1.1% during the month while services prices increased only 0.1%. In CPI, gasoline prices jumped 3.9% and accounted for more than one-third of the overall monthly increase.
That is why economists often look beneath the headline number. An index can move sharply because of one or two categories without indicating that every price throughout the economy is moving at the same pace.
Why the Fed and markets care
Inflation matters to financial markets because it influences expectations about monetary policy. The Federal Reserve’s longer-run inflation objective is 2%, measured by the annual change in the PCE price index. The Fed nevertheless looks at many measures of inflation because different indexes cover different products and services and can therefore send different signals.
Core PCE is also important. Because food and energy prices can be volatile, policymakers often use Core PCE as a way to assess underlying inflation pressure even though headline PCE remains the formal target.
Markets therefore do not simply ask whether a CPI or PPI report is “high” or “low.” They ask what the new information might mean for inflation, economic activity and ultimately the future path of monetary policy. That is why an economic release at 8:30 in the morning can cause Treasury yields and other asset prices to move almost immediately.
One report is information, not a verdict
Perhaps the most useful lesson from the recent inflation headlines is that one report rarely tells the whole story.
• A high PPI reading does not mechanically become higher CPI.
• A softer Core CPI reading does not guarantee the next PCE report will move in the same direction.
• One unusually strong or weak month does not necessarily establish a new trend.
Each report is another piece of information about an economy containing millions of prices, businesses and purchasing decisions. Understanding the differences among these measures makes the headlines much less contradictory than they initially appear.
How are markets reacting to these numbers?
Recent inflation reports have generally pushed markets toward expecting tighter Federal Reserve policy and, in turn, higher Treasury yields. After the August PPI report, yields moved sharply higher and futures markets increased the probability assigned to a Fed rate increase. The following day, CPI produced a more mixed response as investors weighed the inflation details alongside falling oil prices and other market developments.
By September 14, the 10-year Treasury yield had briefly crossed 5%. It would be misleading to attribute that move to CPI or PPI alone: energy prices, geopolitical developments, Treasury supply, fiscal concerns and economic growth are also influencing rates. The broader point is that the recent inflation data have contributed to a repricing of interest-rate expectations - not provided a definitive answer about where rates go next.
What This Means for Investors
We do not believe successful investing requires correctly predicting the next inflation report or the Federal Reserve’s next move.
Markets continuously incorporate new information and revise expectations. Sometimes those revisions are small. Sometimes they occur very quickly. For fixed-income investors, the objective is not to build a portfolio that depends on one particular forecast being correct.
At Roosevelt Capital Management, our focus remains on individual securities with identifiable cash flows, appropriate liquidity, diversified maturities and portfolio structures designed to function across a range of interest-rate and economic environments.
If yields rise, maturing securities and coupon payments provide opportunities to reinvest at higher rates. If yields fall, existing bonds continue to generate their contractual cash flows and may benefit from price appreciation.
The goal is not to correctly forecast every CPI, PPI or PCE release. It is to understand what the information means - and to construct portfolios that do not depend on knowing in advance what the next report will say.
With gratitude,
David and Mike
ROOSEVELT CAPITAL EXPLAINS
A Plain-English Guide to Inflation Data
Six questions that make the monthly inflation headlines easier to understand
The financial news regularly refers to CPI, PPI, PCE, “core” inflation and year-over-year inflation as though everyone already knows what those terms mean. Fortunately, the basic concepts are fairly straightforward.
1. What are CPI, PPI and PCE?
The easiest distinction is to think about where we are looking in the economy.
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PRODUCER / BUSINESS LEVEL |
CONSUMER PURCHASES |
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Sources: U.S. Bureau of Labor Statistics (CPI and PPI definitions); U.S. Bureau of Economic Analysis (PCE definition).
PCE and CPI also use different formulas and weights, which is one reason the two measures do not always move by the same amount.
2. What does “core” inflation mean?
Core CPI and Core PCE exclude food and energy. That does not mean food and gasoline do not matter. Quite the opposite: they are very important to household budgets.
They are removed because their prices can be unusually volatile. Looking at inflation both with and without those categories can help distinguish a broad inflation trend from a temporary move in areas such as gasoline or food.
3. Why don’t all the inflation measures match?
Because they are built differently. CPI and PCE differ in what spending they include, how much weight they give different categories, the formulas used to calculate them, and how quickly the weights adjust as spending patterns change. PPI is measuring something different again: prices received by producers rather than prices paid by consumers.
There is therefore no reason to expect all three indexes to produce the same number.
4. CPI versus PCE: why do two measures of consumer inflation differ?
CPI and PCE are both measures of consumer inflation, and they usually move in the same broad direction. But they are built from different data and different concepts, so there is no reason to expect them to produce the same inflation rate in every month or year.
The easiest way to understand the difference is to focus on four questions: what spending is included, where the spending data come from, how the weights adjust, and which categories receive the most emphasis.
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CPI | Consumer Price Index SCOPE WEIGHTS SPENDING CHANGES Shelter generally carries a larger weight in CPI, so housing-cost movements can have a bigger effect on the index. |
PCE | Personal Consumption Expenditures SCOPE WEIGHTS SPENDING CHANGES Healthcare generally carries more weight and shelter less weight than in CPI, partly because PCE includes more third-party healthcare spending. |
A concrete example: healthcare
Suppose an employer, Medicare or Medicaid pays for medical care on a household’s behalf. That spending is captured more broadly in PCE, while CPI is more focused on what consumers pay directly. As a result, healthcare has a larger relative importance in PCE. Housing works in the opposite direction: shelter typically receives substantially more weight in CPI.
The practical takeaway is not that one measure is “better.” CPI is extremely useful for understanding changes in consumers’ out-of-pocket cost of living. PCE is designed as a broader macroeconomic measure of consumer prices. Their different purposes are exactly why the two can give somewhat different readings at the same time.
Sources: U.S. Bureau of Economic Analysis, “What accounts for the differences in the PCE price index and the Consumer Price Index?”; Federal Reserve Board materials on CPI and PCE.
5. Why does the Federal Reserve use PCE as its inflation target?
The differences above help explain the Fed’s preference. PCE covers a broader range of household consumption and adjusts more readily as spending patterns change. The Federal Reserve therefore defines its longer-run 2% inflation objective using the annual change in headline PCE.
That does not make CPI unimportant. Policymakers monitor CPI, PPI and other price measures as well. They also pay close attention to Core PCE - PCE excluding food and energy - because it can help reveal underlying inflation trends even though headline PCE remains the formal target.
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A useful shorthand Headline PCE = the formal 2% target. Core PCE = an important measure for assessing underlying inflation pressure. |
6. Why can an inflation report move markets so much?
Markets care not only about the number itself, but also about what the number implies relative to expectations. An inflation report can cause investors to reassess the outlook for monetary policy, which can quickly affect Treasury yields, borrowing costs and other asset prices.
That does not mean any one report determines what the Fed will do. A monthly report is best viewed as another piece of evidence - not a final answer.
KEY TAKEAWAYS
• CPI, PPI and PCE are measuring different things.
• Core CPI and Core PCE exclude food and energy to help look through short-term volatility.
• The Fed’s formal 2% target is based on headline PCE, while Core PCE is closely watched as a measure of underlying inflation.
• CPI and PCE both measure consumer inflation, but differ in scope, data sources, weighting and how quickly they reflect changes in spending patterns.
• Shelter generally has more influence in CPI, while healthcare generally has more influence in PCE.
• No single inflation release provides a complete picture.
Why We Thought This Was Worth Explaining
Inflation statistics influence interest rates and financial markets, but the terminology can make a relatively straightforward subject seem more complicated than it needs to be.
Our goal is not to turn readers into economists or encourage anyone to predict the next inflation report. It is simply to provide enough context that the next time the news says “PPI was hot,” “Core CPI was softer,” or “PCE remains above target,” those statements are easier to understand - and easier to put in perspective.
Sources and Notes
1. U.S. Bureau of Labor Statistics, Consumer Price Index - August 2026, September 11, 2026.
CPI-U increased 0.4% in August and 3.4% over the prior twelve months; CPI excluding food and energy rose 0.3% for the month and 2.4% over the year. Gasoline rose 3.9% in August and accounted for more than one-third of the monthly all-items increase.
2. U.S. Bureau of Labor Statistics, Producer Price Indexes - August 2026, September 10, 2026.
PPI for final demand increased 0.4% in August and 5.4% over the prior twelve months. Final-demand goods rose 1.1% and final-demand services rose 0.1% for the month.
3. U.S. Bureau of Economic Analysis, Personal Income and Outlays - July 2026, August 26, 2026.
The PCE price index increased 0.2% in July and 3.7% over the prior year. PCE excluding food and energy increased 0.2% for the month and 3.3% over the year. BEA’s next release, covering August 2026, is scheduled for September 30, 2026.
4. Board of Governors of the Federal Reserve System, Inflation (PCE), Economy at a Glance.
The Federal Reserve seeks inflation of 2% over the longer run as measured by the annual change in the PCE price index and notes that PCE adapts more quickly than CPI to changes in consumer spending patterns.
5. U.S. Bureau of Economic Analysis, comparison of the PCE Price Index with the Consumer Price Index (FAQ 555).
BEA groups the differences between CPI and PCE into formula, weight, scope and other effects. PCE has a broader scope, uses different expenditure weights and a chain-type formula that responds more readily to changes in spending patterns.
6. Federal Reserve, Monetary Policy Report, July 2026, and related Federal Reserve materials.
Federal Reserve materials describe core PCE inflation as excluding food and energy and as useful for assessing underlying or medium-term inflation trends, while the formal inflation objective is stated in terms of overall PCE inflation.
7. Wells Fargo Investment Institute, Bond Market Commentary, September 11, 2026.
Following the August PPI release, the 2-year Treasury yield rose 16 basis points to 4.59%, the 10-year rose 12 basis points to 4.96%, and the 30-year rose 8 basis points to 5.37%.
8. Barron's, Rate-Hike Odds Spike After PPI Report, September 10, 2026.
Barron's reported that the market-implied probability of a 25-basis-point Federal Reserve rate increase rose from approximately 62% to 74% after the PPI release.
9. ALM First, September 11, 2026 Headlines.
After the CPI release, Fed funds futures implied roughly a 90% probability of a 25-basis-point rate increase at the September meeting; long-term Treasury yields initially moved slightly lower.
10. Wall Street Journal and MarketWatch market coverage, September 14, 2026.
The 10-year Treasury yield briefly moved above 5%. Contemporary market coverage also cited energy prices, Treasury supply, fiscal concerns and strong capital demand as contributors to the broader rise in yields.
Disclaimer
Roosevelt Capital Management LLC is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. No guarantees or assurances that the target returns will be achieved, or objectives will be met are implied. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal.
While all the values used in this report were obtained from sources believed to be reliable, all calculations that underly numbers shown in this report believed to be accurate, and all assumptions made in this report believed to be reasonable, Roosevelt Capital Management LLC neither represents nor warrants the values, calculations or assumptions and encourages each prospective investor to conduct their own review of the audits, values, calculations and assumptions.