Chart of the Day
Posted at 10:15 a.m. on Dec. 12, 2012
– Dylan Matthews has a must-read post — which includes this chart — explaining what lawmakers and budget wonks mean when they propose a “chained CPI” formula to slow the growth of Social Security spending.
“Numerous government programs, most notably Social Security benefits and the income thresholds for tax brackets, are indexed for inflation. But inflation can be measured in a number of ways.”
“Most inflation measures, including CPI-U and CPI-W, track the price of a certain basket of goods. That basket could include, say, a year’s supply of propane. When propane costs go up, CPI-U and CPI-W include that as an increase in the cost of living. But some people would just stop using propane if its price went up… Chained CPI attempts to take ‘substitution effects’ like this into account. Thus, its number generally rises more slowly than other metrics.”