Your Opinion: ‘Chained’ dollar CPI distorts data
Tuesday, August 5, 2014
I have been doing some research on government spending and continue to be amazed how difficult it is to find unspun data: i.e. real numbers. Virtually everything available has been spun in some manner and even then the spun numbers don’t agree, more on that in a later letter. “Chained” dollars is one of the methods governments used to spin the data.
Chained dollars is a different way of making adjustments for the impact of inflation. Currently the Consumer Price Index uses an apples-to-apples method for the calculation of inflation. For example, the cost of a T-bone steak in 2012 vs. the cost of a similar steak in 2013 is the basis for evaluating the impact of inflation. With the chained CPI method the government has decided that if the cost of a T-bone steak raises significantly from one year to the next people will switch to a lesser expensive cut of beef or to a cheaper meat. Under the chained dollar concept the government considers that our standard of living would be the same if one year we ate T-bone steak and in 20 years we were forced to eat beans as a protein substitute. If the beans cost the same as the T-bone there would have been no inflation.
Social Security recipients better keep abreast of this issue. We will be told that we won’t notice any significant difference (if we are even made aware of the change) but we will be some of the hardest hit by it. A 2012 CNN Money article states that a person who retired in 2000 whose monthly benefit had increased to $1,986 in 2012 would see a $106/month reduction if the chained CPI had been used to calculate inflation. I don’t know about you but I would definitely notice a 5.3 percent reduction in benefits.
A more recent CNN Money article says that Obama has stopped trying to push use of the chained CPI on Congress, as a means of reducing SS benefits. It will be back.
For more information AARP has a video on the subject at https://www.youtube.com/watch?v=HcQlCgZ2fPg&feature=youtu.be and an article at http://www.aarp.org/politics-society/advocacy/info-02-2013/the-chained-consumer-price-index-explained.html