Lesson 2
Measuring Inflation
For Fed policy, watch Core PCE (PCEPILFE) and the 3-month trend. For trading CPI releases, use Truflation to estimate surprises. For long-term positioning, watch 5Y5Y breakevens — if they're rising, inflation expectations are becoming unanchored.
📊 Indicators mentioned in this lesson (click for details):
Inflation isn't one number — it's a family of measurements, each with different uses.
CPI (Consumer Price Index (CPIAUCSL)):
- The headline number media reports
- Includes food and energy (volatile!)
- Used for TIPS, Social Security, tax brackets
Core CPI (CPILFESL):
- CPI excluding food and energy
- Less volatile, better for trend analysis
- What the Fed actually watches (mostly)
PCE (Personal Consumption Expenditures):
- The Fed's PREFERRED measure (officially)
- Different weighting than CPI
- Generally runs ~0.3% lower than CPI
Core PCE (PCEPILFE):
- PCE excluding food and energy
- The Fed's actual target variable
- 2% Core PCE (PCEPILFE) is the Fed's stated goal
Truflation:
- Real-time, alternative data source
- Updates daily using actual prices
- Often leads official CPI by 2-3 months
Breakevens (Market-Implied):
- 5Y Breakeven: What bond market expects for 5-year average inflation
- 5Y5Y Forward: Expected inflation 5-10 years out
- Real-time, market-based
Check your understanding
Lesson Quiz
Quiz Check
You want to anticipate the next CPI print before it's released. What alternative data source should you use?
Quiz Check
What's the Fed's actual target inflation measure and what level do they target?