There are many ways to calculate a consumer price index, which in turn guide COLAs and raises. The various routes continue to spark controversy.
A leading association representing actuaries—insurance professionals who calculate financial risks and liabilities for that industry—just issued an overview of cost-of-living formulas, and promoting the so-called “chained CPI” to calculate COLAs.
The piece—published by the American Society of Pension Professionals and Actuaries (ASPPA) and featuring the work of Mark J. Warshawsky—briefly summarizes some of the variables that go into tabulating changes in what people pay for goods and services, and mathematical ways of modeling those changes. Some of the different measures—each a different take on the familiar term Consumer Price Index, or CPI—include the CPI-U, the CPI-W and the CPI-E.
The CPI-U—where the U stands for the CPI “urban” index—covers price changes that most closely track the purchasing experiences of about 88 percent of the country’s population. The CPI-W stands for prices tracking “wage-earners,” an attempt at a broader measure, geographically speaking. Finally, of the major categories outlined in the piece, the CPI-E represents an effort to model prices most directly affecting the elderly.
While the article is framed mostly as an “explainer” of how CPIs are calculated, it avoids some clear controversies. The piece highlights Warshawsky’s promotion of something called the C-CPI-U, or “chained CPI,” a type of formula long favored by many conservative politicians, and more pointedly beginning just over a decade ago, the last time a weakening in Social Security’s financial foundations worried official Washington into a political battle over how to recalculate COLAs.
In that debate—as in the similar one shaping up now—most fed labor orgs (such as the National Treasury Employees Union and the American Federation of Government Employees) and other economic progressives registered opposition to the use of “chained CPI,” arguing that it could undercount the costs of inflation for many Americans. (A few leading progressive organizations, such as the Center for American Progress, have published articles indicating that some version of chained CPI might be fair, depending on how it is calculated.)
The Bureau of Labor Statistics has published a summary of the chained CPI.
This article has been updated.
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