The standard Consumer Price Index tracks the price of a standard list of products and shows the change in cost to the consumer. The standard CPI shows the change in the cost to maintain a certain standard of living.
The Chained CPI actually shows how people reduce their standard of living to reduce their costs. It reflects changes the consumer makes when prices become too high. People buy cheaper grades of food, and reduce the comfort level of their residences because they can no longer afford to maintain their previous standard of living due to rising prices.
A major expense of people on Social Security is health care. It is acknowledged by everyone that the cost of health care is rising much faster that the standard CPI, for example the 5% increase in the Medicare Part B premium, but health care is not factored in to the CPI. It is obvious that those on Social Security are already losing ground, and the reduction in the Cost of Living Adjustment by the use of the Chained CPI just accelerates the problem.
December 22, 2012 Comments Off