Meet CPI-E, the progressive alternative to chained CPI

April 19, 2013

One frequent progressive response to proposals like the Obama administration's to tie cost-of-living adjustments (COLAs) for Social Security to chained CPI, which rises less quickly and would make COLAs costless, is that he really ought to use CPI-E. That's an alternate, experimental inflation measure developed by the Bureau of Labor Statistics to track consumption among the elderly. If CPI-E were in effect today, it would result in $56 more a year in payments to some who retired in 2001 to maximum benefits:


Today, the CBO took a closer look at the idea of adopting CPI-E. Analysts Noah Meyerson and David Brauer start by noting that CPI-E grew faster than either CPI-W (which is currently used to calculate COLAs) or CPI-U, the traditional inflation measure. That makes sense, as it weights health care more heavily than other inflation measures, and health costs have spiked of late. However, in recent years, it's grown less quickly, as health cost increases have slowed:


So using CPI-E instead of CPI-W could actually reduce costs going forward.

That said, the authors are generally skeptical of the case for adopting an elderly-specific index. "It is unclear, however, whether the cost of living actually grows at a faster rate for the elderly than for younger people, despite the fact that changes in health-care prices play a disproportionate role in their cost of living," Meyerson and Brauer write. "Determining the impact of rising health-care prices on the cost of someone’s standard of living is problematic because it is difficult to measure the prices that individuals actually pay and to accurately account for changes in the quality of health care."

In any case, this is another indication that the progressive critique of chained CPI is catching on. If it weren't, it's doubtful CBO would have taken the time to analyze CPI-E, which has become the progressive alternative to the policy change.

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Ezra Klein | April 19, 2013