Personal consumption expenditures refer to the measure of price changes in consumer goods and services. Personal consumer expenditures consist of the imputed and actual expenditures of families; this data is the basis for forecasting inflation. The calculation also consists of information pertaining to services, durables and non-durables. In essence, the personal consumption expenditure model is an all-inclusive measure of goods and services consumed by individuals and families.
The personal consumption expenditure calculation is similar to consumer price index. In fact, both measurable are a part of the personal income report put out by the Department of Commerce. Although similar in a number of respects, the Consumer Price Index and the personal consumption expenditure calculation share several key differences. For instance, personal consumption expenditures utilize a chain index, which evaluates consumers’ altering consumption habits as a result of price fluctuation, whereas the CPI utilizes a fixed basket of goods with weightings that do not fluctuate over time.
Personal consumption expenditures are somewhat predictable and have little to no impact on the domestic markets. The calculation serves more as a benchmark to better understand the level of consumption within the GDP. Additionally, personal consumption expenditure models, along with the CPI, are effective at measuring inflation.