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Russia personal consumption Price Index, which uses expenditure data from the current period and the preceding period. PCE has been tracked since January 1959. Through July 2018, inflation measured by PCE has averaged 3.

This may be due to the failure of CPI to take into account the substitution effect. The differences between the two indexes can be grouped into four categories: formula effect, weight effect, scope effect, and “other effects”. The formula effect accounts for the different formulas used to calculate the two indexes. The PCE price index is based on the Fisher-Ideal formula, while the CPI is based on a modified Laspeyres formula. The weight effect accounts for the relative importance of the underlying commodities reflected in the construction of the two indexes. The scope effect accounts for conceptual differences between the two indexes. CPI measures out-of-pocket spending by households.

The “net” scope effect adjusts for CPI items out-of-scope of the PCE price index less items in the PCE price index that are out-of-scope of the CPI. Other effects” include seasonal adjustment differences, price differences, and residual differences. The above chart is illustrative but may not reflect current values. The comparisons in the table above will vary over time as the relative weights of the components of the indexes change. The CPI base price and weightings are adjusted every two years.

The above table illustrates two commonly discussed important differences between the PCE deflator and CPI-U. The first is the relative importance of housing, which is due in part to the difference in scope mentioned above. CPI contains a large component of owner-equivalent rent, which by definition is an imputed value and not a real direct expenditure. The second major difference in weight is healthcare. This again stems from the definition of the index and the surveys used. Another notable difference is CPI prices and weightings are based on household surveys and PCE is based on business surveys.