April 14, 2013

CPI-W versus Chained CPI-U from 1999 to 2012

In recent news there is a proposal to use 'chained CPI' for the COLA adjustments for Social Security.   I'm not going to comment on the politics of that idea since I prefer to avoid political debates here.   However I do think its useful to see the progressive difference between Chained CPI-U or C-CPI-U versus CPI-W over time.    I'll also throw in CPI-U for comparison, hey why not.  C-CPI-U is relatively new and they only have numbers back to 1999.

I pulled the data from the BLS CPI site.   I used the multi-page table to get the figures.   I'm only looking at the December index value to simplify it.   I also normalized them all to start at basis of 100.0 in 1999.   Here is the annual December Index for each index from Dec. 1999 to Dec. 2012:

(click for full size)

The total increase for the 13 year periods are :

total CAGR
CPI-U 36.9% 2.45%
CPI-W 37.5% 2.48%
C-CPI-U 31.9% 2.15%

CAGR is the compound annual growth rate.   Annually the difference isn't huge but it adds up to a few % difference over a decade.

Put this into perspective, say someones monthly social security check starts at $1000.   If it goes up 2.48% with CPI-W then the next year the check will be $1,024.80.    If we use C-CPI-U instead then it will go up 2.15% and they'd get $1,021.50.    Thats a monthly difference of $3.30 for a single year.    Now over time that marginal difference would add up.   Starting with $1000 in 1999 you'd end up with $1,375 from CPI-W and only $1,319 from C-CPI-U or a $52 difference per month cumulative over 13 years.


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