The Consumer Price Index (CPI) is about to become a hot topic again for those on social security – regular and disability. And President Obama appears to be in support of the plan. Gird for battle if you don’t want your social security benefits, veterans benefits, or federal benefits to be impacted and decreased.
The CPI takes a virtual “basket” of consumer goods, including groceries, housing, gasoline, transportation, healthcare, and clothing, and tracks the average prices of the basket’s components over time. When the cost of the “basket” rises, we have inflation albeit sometimes not too noticeable. Our yearly Cost of Living Adjustments (COLA) to social security benefits are based on the CPI.
Now, throw in the concept of chained CPI. The premise behind the chained CPI is that, instead of using the CPI’s rise based on inflation, it looks at anticipated consumer behavior and a practice known as “substitution bias.” The theory is that if prices go up, consumers will substitute – or buy – a lower priced item. Since lower priced items lead to a savings, the price of the “basket” will be less, thus reducing the amount of increase in social security payments because the COLA will be less.
For example, if a can of Del Monte green beans costs $1.09, a consumer may opt for the store brand at $.89 – a savings of $.20. If substitution bias is possible for many items, then the expectation is that those of us on a limited income will do what is necessary to get by, not complain, and buy the cheaper product.
This might work for groceries or items that have alternate products for a lesser price, but what about healthcare and transportation? What about the price of gasoline?
To date, social security has not been chained, but the discussion is rearing its ugly head again. Now, I am not opposed to buying store brand products – I have done so for quite some time, and I see little difference – but what about those items about which we have little alternative choice? Gasoline, transportation, and healthcare have few or no alternatives.
It is time to educate the public on on the reality of what chained CPI means. And, frankly, it means recipients of social security benefits, veterans benefits, and federal benefits are expected to live more frugally and do without simply because we are in classes that are receiving EARNED BENEFITS.