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That pesky CPI index

April 10, 2013

The President’s budget proposal contains language indicating that the growth in Social Security payment expenditures as well as many other things that are dependent on the Consumer Price Index (CPI) will be reined in by adjusting what goes into that index.

According to the Bureau of Labor Statistics (BLS) the CPI consists of eight major categories each of which has a sub-category. The total number of subcategories are approximately 200 with the detail under each category containing “…samples of several hundred specific items within selected business establishments frequented by consumers, using scientific statistical procedures, to represent the thousands of varieties available in the marketplace.”[1]

The Presidents FY 2014 budget states in part: “In the interest of achieving a bipartisan deficit reduction agreement, beginning in 2015 the Budget would change the measure of inflation used by the Federal Government for most programs and for the Internal Revenue Code from the standard Consumer Price Index (CPI) to the alternative, more accurate chained CPI, which grows slightly more slowly. Unlike the standard CPI, the chained CPI fully accounts for a consumer’s ability to substitute between goods in response to changes in relative prices and also adjusts for small sample bias.”[2] (Italics are mine)

This chained consumer price index or C-CPI-U is not new. According to the aforementioned BLS: “The Bureau of Labor Statistics first began publishing the Chained Consumer Price Index for All Urban Consumers in August 2002. Designated the C-CPI-U, the index supplements the existing indexes already produced by the BLS: the CPI for All Urban Consumers (CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W)”.[3]

In an explanatory FAQ page, the BLS states: ” While the C-CPI-U accounts for consumer substitution, the CPI still differs from a complete, or “unconditional,” cost-of-living measure. While the CPI measures changes over time in the cost of consumer goods and services, an unconditional cost-of-living index would go further, and take into account changes in non-market factors, such as the environment, crime, and education. The CPI is said to be “conditional” on those factors. Both the CPI-U and C-CPI-U are indexes designed to measure price changes faced by urban consumers, while the CPI-W is designed to measure price changes faced by urban wage earners and clerical workers. Population coverage is the only difference between the CPI-U and CPI-W. The C-CPI-U is further distinguished from the CPI-U and CPI-W based upon the expenditure weights and formula used to produce aggregate measures of price change.”[4] (Italics are mine)

Far more learned authorities than I could ever be have attempted to make sense of the CPI, whether chained or unchained. All I know about is that the things I use every day that are included in the sub-category description have gone up a lot more than the 2% rise in inflation since February 2012 the BLS lists on its site.

I happened upon a supermarket receipt dated January 7, 2012 while doing my taxes, and just for kicks I compared it to the one I had just brought home on April 4, 2013. (Yeah, I wait a long time to do my taxes). Here’s a couple of examples of that 2% inflation. Eggs,  Large doz. $1.09 in 2012, the same item on April 9, 2013 1.69/doz. Peanut Butter 28 oz in 2012, $3.29. Same item and brand in 2013, $4.29 with coupon, regular price $4.99. I could list another two dozen items just like that but you get the point. That’s a damn sight more than any 2% increase in prices.

In large part, our government is the cause of inflation. There may be regional or short term causes such as natural disasters or over-planting of some crops and under-planting of others. However, in most cases the increased cost of goods  and services are directly traceable to our government. The cost of hundreds of thousands of pages of regulations, both for the wages of the people that write them and the actual regulation, more taxes, more government programs, currency manipulation caused when the Federal Reserve either tightens or loosens the money supply, interest rates tied to the prime set by the Fed, all these things are what actually drives up the cost of doing business and comes back to every one of us in the form of higher prices.

The government wants to limit payments based on monkeying around with the CPI, and hope that we won’t notice that our grocery budget only buys 90 or 80 or 70 percent of what it did a few years ago. How damn stupid do they think we are?  Oh wait, I already know the answer to that one. Apparently they are right, since we keep acquiescing to this BS by re-electing the same people. Hopefully we will wise up in the next 18 months.

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