Research over the past decade has led to improved measures of core inflation in the Consumer Price Index, or CPI. This paper discusses the application of some of the insights and techniques of that line of research to the Federal Reserve Bard of Governors’ preferred inflation gauge, the price index for Personal Consumption Expenditures (PCE). The result is a new measure of core PCE inflation—the trimmed mean PCE—and a somewhat different characterization of the economy’s recent inflation experience. ; Compared to the story told by the usual “excluding food and energy” measure, the trimmed mean PCE tells us that the lows reached in 2003 weren’t quite so low and that the highs reached in mid-2004 were really a bit higher. On a 12-month basis, the new measure suggests that core PCE inflation is currently about half a percentage point higher than what is being indicated by the “excluding food and energy” inflation rate.
