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Response to madfloridian (Original post)

Fri Feb 21, 2014, 04:22 PM

9. Hiltzik "Ripping off needy seniors through the 'chained CPI'"

Another great article of his from 2011.

Ripping off needy seniors through the 'chained CPI'

Of all the ways policymakers in Washington show they have absolutely no conception of how their tinkerings with the federal budget affect average Americans, one stands alone. That's the proposal to change the formula that determines annual cost-of-living increases for people on Social Security.

At the heart of this particular change is an inflation indicator known as the chained consumer price index. You may have heard the term bandied about, along with the claim that it's more accurate at measuring inflation than the plain-vanilla versions of the CPI used today for inflation adjustments in Social Security, the income tax and other federal programs.

First published by the Bureau of Labor Statistics in 2002, the chained CPI was designed to adjust for the ways real-life consumers compensate when a product or service gets more expensive: They buy less of it, or find a cheaper brand, or find something different, or go without.

The phenomenon is known as "substitution." Economists fear that an inflation index that ignores substitution might overstate the real cost of living because it will include products in its market basket that consumers have tossed out of theirs. The example favored by BLS analysts is ice cream as it rises in price, the analysts observe, consumers will buy a pint instead of a quart, or buy a store brand instead of Breyers, or shop for it at Costco instead of Ralphs.

Published in 2002. That answers a question above.

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