The CPI-E – A Better Option for Calculating Social Security COLAs

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2. The problems with the CPI-E

1. the CPI covers Urban areas (no prices are collected in Montana, for example) and that is not necessarily representative of demographic coverage of the elderly.

2. The Consumer Expenditure Survey (used to construct the basket and weights for the CPI and currently being revised) is not large and the elderly are a small part of the sample, making the specific weights unreliable, especially considering the demographic distribution.

3. Selection of outlets does not represent the buying patterns of the elderly, and cannot always take into account senior discounts.

4. So, it is clear that the CPI-E must be less accurate than current indexes and it's not clear that it does successfully measure for the Elderly.

5. To fix all the problems would be enormously expensive.

This is why nothings been really done. Plus there's the political aspect: What if a properly constructed CPI-E showed LOWER inflation? Would you want to President for that?

Good article on the issues and the differences between the different measures: http://www.bls.gov/opub/mlr/2008/04/art2full.pdf