We all know about inflation. One popular measure is the Consumer Price Index (CPI), which measures the change in price of a fixed basket of goods. The other popular measure used for inflation is the Personal Consumption Expenditures (PCE) price index. This index measures the price of what consumers actually purchase and captures the effects of consumers changing their consumption bundles over time. While the latter is a better measure for the prices at which consumers make purchases, it takes longer to calculate. In practice, the earlier CPI release gives a pretty accurate preview to the PCE price index.

While consumption is a substantial two-thirds of total expenditures in the US economy, other prices definitely matter. On average, a third of our income is spent on other things. Below is a stacked bar chart of quarterly GDP components – the classic Y=C+I+G+NX.* Investment spending composes a relatively stable 16.7% and Government spending composes about 16.5% of GDP. We almost never hear much about the price of these other things.

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