The CPI-E – A Better Option for Calculating Social Security COLAs

[eridani]

https://www.ncpssm.org/PublicPolicy/SocialSecurity/Documents/ArticleID/1159/The-CPI-E-%E2%80%93-A-Better-Option-for-Calculating-Social-Security-COLAs

President Obama’s 2014 budget proposal includes a plan to change the way Social Security cost-of-living adjustments, or COLAs, are calculated by adopting the “chained” consumer price index (CPI). The National Committee has been vocal in its opposition to the chained CPI because it does not accurately measure the purchasing patterns of our elderly population. We urge the adoption of a CPI for the elderly, or CPI-E, as a more accurate means of calculating Social Security COLAs. An in-depth examination of the CPI-E follows.

The CPI-E uses the same formulas and prices as the CPI-W, but their importance is determined, or weighted, differently. The CPI-E uses expenditure weights for households with individuals age 62 or older. This sample size is 26 percent of the size used for the other BLS indices, so is subject to a greater sampling error than the other indices. This is one reason the CPI-E continues to be classified as “experimental”.

From December 1982 to December 2011, the experimental CPI-E has tended to rise more rapidly than the CPI-W. Using the CPI-E to determine the Social Security COLA would increase the expected average COLA by about 0.2 percentage points per year. In contrast, using the chained CPI would result in COLAs lower than under current law. COLAs using the chained CPI are estimated to reduce expected average COLAs by 0.3 percentage points per year. That means a typical 65 year-old would see a decrease of about $130 in

Social Security benefits using the chained CPI after the change has been effective for three years. At age 95, the same senior would face a 9.2 percent reduction—almost $1,400 per year. The BLS acknowledges the current CPI does not “produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly or the poor.” Neither the current CPI-W nor the proposed chained CPI takes into account the spending patterns of America’s seniors. This is why we need an elderly index.

According to the BLS, in order to move to an “official” CPI-E, it would need to conduct additional research including where elderly households are located, where the elderly actually shop, and what mix of products the elderly purchase. The CPI-E has been under review for nearly three decades. It is time for the federal government to provide the resources for BLS to conduct this research and to expand the sample size of individuals age 62 and older, to conclude its analysis, and adopt a more accurate consumer price index for the elderly.

[newfie11]

1. I really really hate my government

Messing with my SS!
No doubt they will still figure out a way to continue stealing more of it.

All they have to do is raise the cap but God knows we can't piss off billionaires that own the congress!

[pinqy]

2. The problems with the CPI-E

1. the CPI covers Urban areas (no prices are collected in Montana, for example) and that is not necessarily representative of demographic coverage of the elderly.

2. The Consumer Expenditure Survey (used to construct the basket and weights for the CPI and currently being revised) is not large and the elderly are a small part of the sample, making the specific weights unreliable, especially considering the demographic distribution.

3. Selection of outlets does not represent the buying patterns of the elderly, and cannot always take into account senior discounts.

4. So, it is clear that the CPI-E must be less accurate than current indexes and it's not clear that it does successfully measure for the Elderly.

5. To fix all the problems would be enormously expensive.

This is why nothings been really done. Plus there's the political aspect: What if a properly constructed CPI-E showed LOWER inflation? Would you want to President for that?

Good article on the issues and the differences between the different measures: http://www.bls.gov/opub/mlr/2008/04/art2full.pdf

[eridani]

3. So what if urban areas are analyed? All that means is that the rural elderly get a bonus

Every single retiree organization backs CPI-E. This year, with higher medical costs and flat gas prices, CPI-E would give a COLA. If the situation were reversed, that would not be the case. But so what? It would reflect the fact that seniors spend more on meds than on gas wither way.