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Thu Dec 20, 2012, 05:07 PM

Any wonk types know what ever happened to the CPI-E?

BLS seems to have floated this balloon back in the 1990's, to a resounding thud. It shakes out to about a 2% higher COLA most years.

Here's the weights breakdown (sorry for the formatting...),

Expenditure Group CPI-U CPI-W CPI-E

All items 100.00 100.00 100.00
Food and beverages 17.33 19.26 15.00
Food at home 9.88 11.21 9.66
Food away from home 5.89 6.37 4.23
Alcoholic beverages 1.57 1.68 1.10
Housing 41.35 38.89 46.89
Shelter 28.29 25.98 33.88
Apparel and upkeep 5.52 5.53 3.93
Transportation 16.95 19.02 13.82
Medical care 7.36 6.26 12.14
Medical care commodities 1.28 1.06 2.57
Medical care services 6.08 5.21 9.57
Health Insurance .36 .25 1.09
Entertainment 4.37 4.03 3.35
Other goods and services 7.12 7.01 4.87
College tuition 1.61 1.19 0.59

So this suggests that (at least 20 years ago) people over the age of 62 spent much less on food, clothes, and transportation, and much more on medical care (not surprising) and housing (surprising) than younger people.

Inertia demonstrated: using the spending patterns of a post-World War I civil servant to determine cost of living adjustments for seniors in 2012, when we've had a more relevant index for two decades.

(On a side note, the bit about chaining meaning "if I switch from steak to hot dogs we go to the price of hot dogs" is kind of simplistic; what happens is that if a lot of people switch spending among those particular expenditure groups, those weights change. That is, the problem isn't the idea of chaining per se, which actually makes a lot of sense, but rather that the particular practice of chaining being discussed results in weights that are not terribly relevant to how the elderly actually spend their money.)

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Reply Any wonk types know what ever happened to the CPI-E? (Original post)
Recursion Dec 2012 OP
AnnaLee Dec 2012 #1
MannyGoldstein Dec 2012 #2
AnnaLee Dec 2012 #3
MannyGoldstein Dec 2012 #4
AnnaLee Dec 2012 #7
elleng Dec 2012 #5
AnnaLee Dec 2012 #6
muriel_volestrangler Dec 2012 #8
AnnaLee Dec 2012 #9

Response to Recursion (Original post)

Thu Dec 20, 2012, 05:26 PM

1. Here is a little info. I hope someone does weigh in on the decision not to use it.

A search at the BLS site for the CPI-E gives the results at this link:
Search results

I might read these to find out what happened following the 1987 legislation and the development by BLS of the CPI-E. What we do know is that it isn't used to determine the yearly increases. This is from one of the articles I found in the search:


Experimental price index for elderly consumers Nathan Amble and Ken Stewart

"...The Consumer Price Index (CPI) of the Bureau of Labor Statistics measures the average change in prices over time for a fixed market basket of goods and services for two population groups. The CPI for All Urban Consumers (CPI-U) represents the spending habits of about 80 percent of the population of the United States. The CPI for Urban Wage Earners and Clerical Workers (CPI-W) is a subset of the CPI-U and represents about 32 percent of the total U.S. population.

The 1987 amendments to the Older Americans Act of 1965 directed BLS to develop an experimental index for a third population of consumers: those 62 years of age and older. In its 1988 report to Congress, BLS observed that from December 1982 to December 1987, the experimental consumer price idea for older Americans rose slightly faster than the CPI-U and CPI-W.1 (See table 1.)

This article updates the analysis of the behavior of the experimental index for older Americans for the period from December 1987 through December 1993. Over this 6-year period, the experimental price index rose 28.7 percent, slightly more than the increases of 26.3 percent for the CPI-U and 25.5 percent for the CPI-W...."



I hadn't realized it went back so far.

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Response to Recursion (Original post)

Thu Dec 20, 2012, 05:26 PM

2. It didn't support the desired goal of reducing Social Security payments

So it was marginalized.

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Response to MannyGoldstein (Reply #2)

Thu Dec 20, 2012, 05:31 PM

3. Just curious. Do you know if Greenspan was involved in this? nm.

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Response to AnnaLee (Reply #3)

Thu Dec 20, 2012, 05:34 PM

4. Not that I know of nt

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Response to MannyGoldstein (Reply #4)

Thu Dec 20, 2012, 06:06 PM

7. The reason I asked is that I recalled Greenspan talking about it to Congress (CSPAN)

but that was years ago. It's curious because I read this reasonable discussion today at Marketwatch:
http://blogs.marketwatch.com/encore/2011/07/19/social-security-cost-of-living-adjustments-are-fair-game-but-let%E2%80%99s-call-a-spade-a-spade/
Social Security Cost-of-Living Adjustments Are Fair Game, But Let’s Call a Spade a Spade

Which is echoed in

Social Security Bulletin, Vol. 67 No. 3
http://www.ssa.gov/policy/docs/ssb/v67n3/v67n3p73.html
"...At the same time, many economists and others, including then-Federal Reserve Chairman Alan Greenspan and former Commissioner of Social Security Robert Ball, have argued that the annual COLAs currently being granted are in fact larger than actual inflation and should be reduced rather than increased (Greenspan 1997 and 2004; Ball 2004). Thus, some proposals have called for annual COLAs to be reduced to account for the current overstatement of inflation.3 This article describes some of the issues involved with indexing Social Security benefits for inflation in general and explores the implications of adopting either of the two alternate COLAs suggested for indexing benefits.

...


In light of these perceived biases, it might seem natural to consider designing a chain—weighted CPI-E price index for the elderly. Such a price index could theoretically address the concerns represented by both alternative points of view. However, as this article demonstrates, both chain—weighted indexes and price indexes restricted to the OASDI elderly population suffer from significant limitations when used as the basis for COLA calculations. Furthermore, as the two currently perceived biases seem to be offsetting and of roughly equal magnitude, there is reason to suspect that such a hybrid index would be similar to the currently used CPI-W....



The Marketwatch article makes a similar observation about chained CPI-E.

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Response to Recursion (Original post)

Thu Dec 20, 2012, 05:39 PM

5. Guest on Lawrence show mentioned it,

when discussing 'chained' issues, so its still around, at least potentially.

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Response to elleng (Reply #5)

Thu Dec 20, 2012, 05:53 PM

6. Yes, they have been calculating it all along. I found the numbers 1983 through 2007

today and transferred them to a spreadsheet. I haven't had time to find the remaining ones.The link I gave above might have them (or some of them).

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Response to AnnaLee (Reply #6)

Thu Dec 20, 2012, 08:27 PM

8. I think this is their latest on it

From December 1982 through December 2011, the all-items CPI-E rose at an annual average rate of 3.1 percent, compared with increases of 2.9 percent for both the CPI-U and CPI-W. There are several reasons that older Americans faced slightly higher inflation rates over the past 29 years. First, older Americans devote a substantially larger share of their total budgets to medical care. For example, as shown in table 1, the share of expenditures on medical care by the CPI-E population is roughly double that of either the CPI-U population or the CPI-W population. In addition, over the 1983–2011 period, medical care inflation increased significantly more than inflation for most other goods and services (5.1 percent annually for medical care, compared with 2.8 percent for all items less medical care). In fact, medical care inflation has outpaced overall inflation in each of the last 29 years, save for 1996.

Second, older Americans spend relatively more on shelter (see table 1), and during the last 29 years shelter costs have modestly outpaced overall inflation. Thus, the medical care and shelter components account for a significant portion of the difference between the higher rate of increase measured for the CPI-E relative to the two official indexes during the 1983–2011 period.

Although the CPI-E generally outpaced the official measures of inflation over the 1983–2011 timeframe, recent trends show different results. From 2006 to 2011, both the all-items CPI-E and the CPI-U rose at an average annual rate of 2.3 percent, while the CPI-W increased 2.4 percent. This turnaround was caused primarily by changes in the relative inflation rates of medical care and shelter, compared with the overall inflation rate. Specifically, the gap between medical care inflation and overall inflation has generally fallen since 2005, and shelter inflation has been rising slightly more slowly than overall inflation over the 2006–2011 period.

http://www.bls.gov/opub/focus/volume2_number15/cpi_2_15.htm

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Response to muriel_volestrangler (Reply #8)

Fri Dec 21, 2012, 09:59 AM

9. Thanks.

I got boggled up in fical year verses calendar year reporting of the yearly CPIs yesterday and dropped the attempt to finish out the table in my spreadsheet. I will pick it back up when I have a solid block of time to sort the numbers out correctly.

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