Here you'll explore the variations in how we measure inflation and what their differences tell us. You'll need data on the consumer price index and the personal consumption expenditures (PCE) chain-type price index. Convert both into year-over-year growth rates for the best comparison. Consumer Price Index: This metric incorporates only the 211 most commonly purchased items by the average urban family of four. It is what we call a fixed basket metric. That is, it looks at the same basket of goods and estimates how the cost of purchasing that basket has changed over time. PCE Chain-Type Price Index: This metric incorporates everything in the consumption component of GDP. The use of chain-weighting means that this is a flexible basket metric. That is, it allows for the substitution between baskets items over time. Compare the percent change from a year ago views of these measures. How you plot the data is your choice.

Question: What is the general relationship between inflation as measured by CPI versus PCE?

Question: How might the fixed basket versus flexible basket dynamic lead to this general relationship?

Question: In periods of high inflation (like today and in the 1970s), how does this relationship evolve? Does this reinforce your explanation above?