I love Alan Grayson, but couldn't follow his explanation of chained CPI

[muriel_volestrangler]

6. Inflation is measured over a period; the 'classic' calculation measures the goods and services,

both their prices and quantities bought, at the start of the period, and then the prices at the end of the period, and works out how much it would cost to buy the same quantity of all the same goods and services as before.

The chained method also measures the quantities bought at the end of the period, and then uses a complicated formula to work out 'average' quantities for the period. How this affect the figures depends on what people buy less of; if it's something that is going up fast in price, then the chained CPI figure will be lower than the simple CPI figure (and people will always have a tendency to buy less of things getting very expensive). But if what people buy less of is a luxury that is going up in price slower than most goods (eg a smartphone), then that would increase the chained CPI. In practice, it has ended up as being about 0.3% lower per year than the simple figure.