Tuesday, December 18, 2012

What is Chained CPI?

What is chained CPI (Consumer Price Index)?

Well, it is a proposed difference in how we measure inflation and cost of living - which has implications for social security payments and probably a lot more real world stuff. 

Economists assume that when prices rise on a product, people turn to a less expensive alternative. Substitute chicken for beef, for example. In the past, the rise in beef prices would be counted as inflation.

Under chained CPI they wouldn't be. The reasoning is that lower cost alternatives are available so inflation won't affect you. 

Translation: Since you cannot afford to buy it, there is no inflation. 

Here's a very detailed article from the National Journal.

Here's a summary from the Washington Post.

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