Why does the Nasdaq get nervous when CPI and PCE are released?
Distinguish between consumer prices and the Fed's inflation target. This is how to actually read headline vs. core, month-over-month vs. year-over-year, and base effects.
Table of contents
Remember this first
First, 3 things to remember
- 1CPI and PCE both track consumer prices, but they differ in scope, weighting, and calculation methods.
- 2The Fed's long-term 2% target is based on the annual growth rate of the headline PCE.
- 3A slowdown in the inflation rate does not mean that price levels have gone down.
CPI and PCE are different price indicators.
The CPI is the Consumer Price Index released by the BLS. It measures changes in the purchase prices of goods and services by urban consumers. The PCE price index is released by the BEA and reflects a broader range of consumer spending and changes in spending composition. Consumption paid for by entities other than households, such as medical expenses, also creates differences in scope.
| Category | What are you reading? |
|---|---|
| CPI | Price changes faced by consumers. It is monthly data that provides a relatively early look at price trends. |
| PCE Price Index | Price changes in Personal Consumption Expenditures. It is the benchmark for the Fed's long-term inflation target. |
| Headline | It is the price change of the entire basket, including food and energy. |
| Core | An indicator that excludes food and energy to examine the underlying trend. It does not mean those costs disappear from daily life. |
Month-over-month and year-over-year answer different questions
Month-over-Month (MoM) shows the change over one month, while Year-over-Year (YoY) shows the difference from 1 year(s) ago. Read seasonally adjusted MoM for recent trends and YoY for annual burdens. Do not directly compare numbers with different adjustment statuses or index types.
If a hypothetical price index goes from 100 last year to 103 this year, that is a 3% increase. If it is 105.06 the following year, the rate of increase slows to 2%, but the price is still higher. This is disinflation, where the pace of price increases slows down. It is different from deflation, where the price level itself falls.
The numbers may look good due to the base effect
The comparison base for YoY changes every month. If a month with exceptionally high prices 1 year(s) ago becomes the benchmark, the YoY figure may decrease even if monthly increases continue. Conversely, a low base can cause the YoY figure to rise.
Therefore, we do not judge that inflation problems are over by looking only at the month-over-month or year-over-year figures for one month. We examine the month-over-month trends over several months and detailed items such as housing, services, and goods. Since the index weight and reflection timing of each item differ, perceived inflation and the overall statistics are not the same.
What path is created if inflation is higher than expected?
Let's think conditionally. If higher-than-expected inflation increases the likelihood of maintaining policy rates for longer and market interest rates rise, it may create burdens for the valuation of future earnings and corporate financing. A decline in consumers' real purchasing power can also affect corporate demand.
However, the profits of companies that can maintain sales even after raising prices differ from those that absorb costs. If the cause of lower inflation is supply normalization, it can be positive, but if it is due to severe demand contraction, concerns about revenue also grow. In either case, it does not automatically determine the direction of the Nasdaq.
If only core PCE reaches 2%, is the target achieved?
The benchmark for the long-term 2% target explained by the Fed is the annual change in the overall PCE price index. Core PCE is useful for assessing persistent inflationary pressure, but it is not the same as the target indicator itself. The fact that CPI is 2% does not confirm a policy change.
When the PCE is released, distinguish between inflation and consumer spending. Even if spending amounts have increased, real consumption excluding the price effect may be weak. First, check whether the headline "PCE increase" refers to spending amounts or the price index.
Look at these four boxes first on the announcement screen
Hypothetically, if the expected core CPI MoM is +0.2% and the actual release is +0.3%, the difference is +0.1% points. Do not conflate this with saying "inflation rose by 0.1% more than expected." Small differences can be hidden even in rounded single-digit numbers.
- 1
Check whether it is headline or core, and month-over-month or year-over-year.
- 2
Place the actual, expected, and previous figures of the same indicator side by side.
- 3
Check the items that drove the overall price level and the trends over several months.
- 4
Distinguish and record the reaction of Treasury yields and the interpretation of corporate earnings.
You should not make such assumptions
“Since the CPI inflation rate went from 3% to 2%, does that mean the price of goods went down?”
If it is the same YoY comparison, it means the rate of price increases has slowed. This is different from a decline in price levels, and individual consumption baskets and perceived inflation may also differ.
Check what you have read.
- Did you distinguish between headline and core?
- Have you checked the month-over-month, year-over-year, and whether it is seasonally adjusted?
- Did you look at the base effect and the detailed items?
- Do you remember that the Fed's target is based on the headline PCE?
Apply what you read to the actual screen
Try it on WAPE
Source and scope of verification
Reviewed · Version 1
- Consumer Price Index · Frequently Asked QuestionsNew window
U.S. Bureau of Labor Statistics · Verify 2026-10-20
Scope of the Consumer Price Index and the headline vs. core (excluding food and energy) indices · Distinguishing between price levels, rates of change, and seasonal adjustments - Personal Consumption Expenditures Price IndexNew window
U.S. Bureau of Economic Analysis · Verify 2026-10-20
PCE price index and the index excluding food and energy · Measurement method reflecting changes in the composition of consumer spending. - What is inflation, and how does the Federal Reserve evaluate changes in the rate of inflation?New window
Federal Reserve · Verify 2026-10-20
The long-term 2% inflation target is based on the annual change in the headline PCE price index · Evaluate various inflation data together - Schedule of Releases for the Consumer Price IndexNew window
U.S. Bureau of Labor Statistics · Verify 2026-10-20
CPI release date and US Eastern Time 08:30 verification path - BEA Release ScheduleNew window
U.S. Bureau of Economic Analysis · Verify 2026-10-20
How to check the release dates and times for GDP, personal income, and expenditures
This is educational material for observation and information comprehension. Hypothetical examples do not represent actual stocks or performance and do not provide buy or sell recommendations.