General Discussion
In reply to the discussion: Krugman: Rumors of a Deal (WTF?) - updated [View all]plethoro
(594 posts)people. A chained CPI works like this. It adjusts real inflation for what people actually do during inflation. People spend less money on things: clothes, food, etc. The chained CPI adjusts real inflation for that. So let's say inflation goes to 12%--and it will--the government bean-counters come up with a chain-cpi figure that reduces that 12 % to say 5%. And then apply it to Social Security payments--making the increases less than if real inflation were used, like always. And this difference accumulates over the years, so that after 20 years you may be paying 8 dollars for a loaf of bread whereas your chained CPI figures won't be near the inflation increases over the years because it figures you will simply stop eating expensive bread. Now, with interest rates so low for so long, when inflation takes off it will be sky-high for a while until the banksters back off.