reader Bruce Hall Disparaging the use of the PCE deflator to deflate NIPA's… PCE (Personal Consumption Expenditures). Well, the PCE deflator does use business-oriented prices, not consumer-oriented prices. Mr. Hall suggested using the Consumer Price Index. But this carries a different weight. (It doesn't make sense to apply a CPI-weighted price index to the PCE-weighted aggregate – if this is confusing, read some price index theory). what to do? what to do?
Heck, check it out Fred. Well, if you read a lot of the literature, you will find that there is something called a market-based PCE (chained price index), which uses consumer-facing prices (CPI) but also uses PCE weights. What do we then get (compare to using the PCE deflator here) postal)?
figure 1: Per capita consumption $ in 2017 is calculated by dividing consumption by population (blue) and the 2016-19 (stochastic) trend (tan) using PCE market-based weights. NBER-defined recession peak-to-trough dates appear gray. Sources: BEA, FRED Census, NBER, and author's calculations.
Well, look! March per capita consumption was 2.0% above the 2016-19 (random) trend (while BEA used Traditional PCE deflator).
After many years of blogging and reading comments, I now understand that although access to the repository is very easy and there is an extensive explanation of how the index is constructed, there is a very thin line between commenters making unsubstantiated claims and ignorance of the data. High correlation. If someone could invent something that compiled a corpus of basic knowledge about such things in a systematic way… maybe call it a textbook! Maybe if people actually read these things before commenting, we would actually make progress in the world.
