Understanding the CPI

Now I know a little more about the Consumer Price Index and how this figures into the cuts that Obama is prepared to accept in Social Security cost of living increases.

The proposal is simply to use what's called the "chained-CPI index" instead of the simple "cost of living" index.  Some economists say the chained-CPI index is more accurate of real spending cost increases.  What it does is measure the increased prices of what is actually purchased, rather than simply on how prices have gone up.

Under the old way, if the price of beef goes up, the CPI goes up.  Under the chained index:  if the price of beef goes up, and if a significant number of shoppers then buy pork instead of beef, that is taken into consideration.   So, in effect, it doesn't just compare the price of beef in 2011 with beef in 2012;  it compares what people paid for groceries in 2011 with what they paid for groceries in 2012.    Same with clothing, etc.

There are now some statistics on how much the change would affect SS checks.   Over the past 26 years, on average, it would have been 0.28% a year less -- or 7.32% over the 22 years.   A relatively small amount per year, but it does add up over time.

As of this writing, Nancy Pelosi says the House Democrats will accept it.   One of the labor leaders says they oppose it, but they're not yet ready to say it should be the deal breaker in a fiscal cliff settlement.

And, remember this.   It can always be increased later by a more Democratic-friendly Congress.

Ralph