Understanding Chained CPI

Jos. Warren

@WarrenHillFilms

Chained Consumer Price Indexing (CCPI) is on the precipice of implementation with far-reaching impact to millions of Americans, yet few understand how CCPI actually works. President Obama, whose annual pay has suffered a severe setback through the voluntary return of 5%, is very enthusiastic about Chained CPI.

The American Association of Retired People (AARP), the organization that begins sending invitations to join ever-earlier - now at about 7 years of age - and a variety of other organizations have all offered their interpretations of Chained CPI to help the average benefit recipient understand how the implementation of this unique system will impact the average future increase. But no one has gotten it right...until now. (Read on for an accurate description of how Chained CPI may affect you or your loved ones.)

At this time, 46.2 million Americans live below the Poverty Line and receive some small stipend to help chase off the wolf at the door. Some of the 46.2 million are includable in the 54 million Americans who receive Social Security as retirees and as survivors receiving benefits, and in the more than 8 million Americans receiving Supplemental Social Security, who have thus retired early due to alleged illness or disability. Then, too, the 3.5 million Americans receiving Welfare today are also potentially affected by the implementation of CCPI.

So, what’s different about CCPI versus the long-standing CPI used to-date for calculating benefit increases?

It’s an entirely different Market Basket approach to understanding how consumers shop. Famously, proponents of CCPI say that when we shop we carefully select those things we can afford in lieu of those things that have taken on an accelerated appreciation for whatever anomalic reason.

Those in favor of this system say something like, “If the price of beef is too high, then the consumer will select pork, instead” which seems completely rational until one begins to understand that the price of any meat has increased dramatically in the last few years for several reasons: The price of forage products to feed America’s meat producing industries owing to increased exports to, among other countries, China (see Shall We Gather at the Liver, in the Archives); A prolonged and ruthless drought in the Southwest; Increased cost of fuel for the transport of live and butchered meat products; and a plethora of other reasons.

So, the syllogism actually looks more like this: Consumer A, a 68 year-old retired woman receives $1,200 per month in Social Security benefits. She had worked all of her life both at a job and raising three children, one of whom was Killed in Action in Afghanistan. The other two children have moved away and are raising families of their own. One adult child is an unemployed Logger in Oregon. The second is married to a manufacturing manager whose job was outsourced to China.

Consumer A’s husband predeceased her three years before after a prolonged illness that forced them to sell their home at a time, like today, when the Fair Market Value was only a few thousand dollars more than when they bought the home nearly twenty years prior, to pay his medical bills. At that time they also had a Certificate of Deposit for a little more than $20,000 generating a yield from their bank, a recipient of several billions of dollars in government funding in 2009, of less than 1% per year, or about $180.

She can no longer drive because of the cost of fuel and automobile insurance, so she sold the family car. She is prescribed medication for hypertension but rarely can afford to refill the now-empty bottle. Her rent is $750 per month. Utilities average $190 per month.

Consumer A at the supermarket: As she approaches the meat counter she notices that the price of filet mignon has increased from last week’s $9 per pound to a little more than $12. Mon Dieu! She proclaims and vows to swear off expensive steak, at least for the next week.

She moves warily away from the Beef section to the Pork, and, after counting her remaining food money for the month, recognizing that she has about $28 for the next 17 days, she continues past Pork at $3.59 per pound and heads to the dog food aisle where she finds a very nice can of generic dog food containing the anatomical parts of cows and pigs that are not suitable for any other use.

The good news? It’s only thirty-nine cents per can, which means she can eat fairly heartily over the next 17 days, and perhaps by then filet mignon will be back down to a more reasonable level, and that, my dear children, is Chained Consumer Price Indexing.

Take heart, though: it will likely affect Obama’s pay too, resulting in a smaller increase in the $400,000 per year salary along with the $50,000 annual expense account, and $100,000 nontaxable travel account, and $19,000 for entertainment, plus the millions upon millions of dollars spent to support our Commander in Chief and his wife and children...

...and I mean millions.