between the two indexes, including the treatment of medical services; the fact that the PCE has updated weights every 4 or 5 years whereas the CPI had 1982-1984 weights until 1998; and the use of a Fisher index for aggregation in the PCE versus a fixed-weight Laspeyres for the CPI. On balance, these differences tend to lower the PCE slightly relative to the CPI: over the 10 years shown in the table, the average annual increase in the PCE was 0.2 percent less than in the CPI. Overall, however, the two indexes move very closely together, exhibiting much the same downward trend in inflation over the period and, with the exception of 1996, roughly the same pattern of small fluctuations around the trend. Except for a 1-year deviation in 1992, the price index for GDP moves closely with the consumption price indexes—not too surprisingly since consumption is two-thirds of GDP.

There is not much to choose among the indexes as an indicator of general inflation. The NIPA indexes allow an analyst to keep track of indexes for investment goods, exports, and consumer goods estimated on a basis consistent with the index for total GDP. It has up-to-date weights and a small advantage in being aggregated as a Fisher index. The CPI, in contrast, is produced monthly—although this advantage is attenuated by the degree of noise that accompanies monthly data. Luckily the Federal Reserve, the executive branch, and the Congressional Budget Office have enough analysts to use and compare both sets of indexes and their various components.



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