Wednesday, April 24, 2013

Weighing the Pros and Cons of Chained CPI

Consumer Price Index
Following the  talk-of-the-town budget proposal released by U.S. President Barack Obama that was eventually approved by the Republicans in the end despite the oppositions from the Democrats and other government and non-government organizations, the lawmakers are now examining the impacts of the so-called chained Consumer Price Index (CPI).

Several media sources have confirmed that the lawmakers on House Committee on Ways and Means Sub-committee on Social Security today take a closer look on the effects of the new proposed formula on the federal programs. According to reports, house examines whether using a chained CPI formula to calculate Social Security benefits is the right way to reduce the program’s future costs.

During a hearing, people asked how chained CPI differs from the current index. As a response, a spokesperson from the Bureau of Labor Statistics (BLS) explained that the current CPI is the index used for all urban consumers or the CPI-U while the chained CPI is the latest in the stage in the development of today’s cost of living measures and improves on the CPI-U by considering how consumers substitute among goods when the price changes of those goods vary. The agency came up with such formula by using price surveys, consumption expenditure survey and formulas to figure monthly estimates of changes in the cost of living, the spokesperson stressed.

In addition, the co-chair of The Strengthen Social Security Coalition has also agreed that the new formula is a better gauge than the current index for seniors since the increasing healthcare cost consumes more of their expenses, which is reflected in the new CPI-U.

On the contrary, a ranking member of the Subcommittee argued that changing the CPI would simply means a cut to future recipients’ benefits.

Consequently, pros and cons regarding the chained CPI were further argued, but so far, neither the advocates nor the opponents spotted a sure win.

Nevertheless, advocates of the new formula continue to push the same. They believe that the proposed changes would finally bring a technical improvement in the country’s cost cutting efforts, speculated by a Los Angeles disability lawyer.