Key differences between CPI and PCE inflation indexes

• CPI and PCE track inflation differently - CPI looks at consumer prices, while PCE tracks government, nonprofit, and consumer spending • Housing has 4x more weight in CPI vs PCE - so housing price changes impact CPI inflation way more • PCE better captures substitution effects - like consumers buying margarine instead of pricier butter • The indexes use "owners' equivalent rent" to track housing - but it doesn't capture trends in new rental leases
• Homeowners locked into mortgages don't feel housing inflation - unlike renters who see payments rise