Proposed change in measure of inflationPublished 3:56pm Tuesday, August 9, 2011
By WAYNE CURTIS / Guest Columnist
Most of us understand that reducing the budget deficit and paying down the national debt are crucially important to the nation’s future. But a frequently discussed option that could have an adverse impact on certain Americans — in particular, Social Security and supplemental security income recipients, military retirees, and federal civilian employees — is largely unknown to many people.
The approach is called a technical correction to the consumer price index (CPI). It is more formally known as the “chained CPI” (C-CPI) and is not an entirely new concept.
A group of economists who believe the CPI overstates inflation by about 0.3 percent have made the case for the C-CPI. And to correct the overstatement, they propose using the C-CPI to make annual benefit adjustments, contending this move would reduce the deficit by $300 billion over 10 years.
Proponents of the C-CPI also claim that it more accurately reflects consumer spending patterns. They point out that consumers change their behavior when prices of some products and services rise.
They do this by buying cheaper substitutes. For example, when the price of beef rises relative to pork, people may buy less beef and more pork.
The approach is called “chained” because it is tied to actual spending patterns. At present, the CPI assumes a fixed market basket of goods and services purchased by typical consumers.
Opponents of the chained approach point out how this would adversely affect those on fixed incomes, both present and future. They especially stress the impact on those who are unable to work due to disability, blindness, or old age.
These individuals receive Supplemental Security Income (SSI). To qualify for SSI, recipients must be living below the federal poverty line.
Both viewpoints have merit. While we must take appropriate action to reduce the budgetary deficit and national debt, we should also remember the groups that would be penalized by this approach.
Wayne Curtis, Ph.D., is on the board of directors of First United Security Bank. He may be reached at email@example.com.