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Tuesday, December 27, 2011

A Separate Consumer Price Index for the Elderly?

Linda Levine
Specialist in Labor Economics

The federal government, in an effort to protect the purchasing power of Social Security beneficiaries, indexes benefits to increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Concern has periodically been expressed that the CPI-W may understate the impact of inflation on the elderly population and that it therefore may not be the most appropriate measure of inflation’s impact on the elderly.

At the behest of Congress, the U.S. Bureau of Labor Statistics (BLS) developed an experimental price index to track changes in the cost of living for the population aged 62 and older. The average annual rate of change between December 1982 and December 2010 in the experimental consumer price index (CPI-E) for the elderly was 3.1%. Over the same period, the CPI-W rose by 2.9%. Methodological limitations in the experimental index may have contributed to this difference, however. Were BLS to construct an index that is more representative of the elderly population, there is no guarantee that the relationship between the new index and the CPI-W would be the same.

Interest in the CPI-E most recently has emerged in response to deficit-reduction plans that recommend that inflation-indexed provisions in federal law be based on the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). Because the C-CPI-U typically has risen more slowly than the CPI-W, this proposal has raised concern among those Social Security recipients who already believe they have not been fully compensated for increases in their cost of living. As a result, bills have been introduced to switch for purposes of Social Security indexation from the CPI-W to a CPI for those aged 62 and older (H.R. 456, H.R. 539, H.R. 776, H.R. 798; and S. 1876). This would offset the deficit-reduction effect of changing from the CPI-W to the C-CPI-U, however, if increases in a new index for the elderly or the CPI-E outpaces those in the other price indexes.

Date of Report: December 12, 2011
Number of Pages: 10
Order Number: RS20060
Price: $29.95

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