Chained CPI Definition | Annuity Digest

Chained CPI

The chained CPI or chained consumer price index is an alternative inflation measure that has been receiving increasing amounts of attention in light of deficit reduction efforts. The chained CPI includes an adjustment mechanism that results in lower price increases than indexes such as the CPI-U or CPI-W. Critics argue that this lower rate of price increase is detrimental to retirees who have benefits such as Social Security that are tied to the lower cost of living adjustments. Social Security increases are currently based on the CPI-W. The chained CPI would result in cost of living increases that are one quarter of one percent less per year than the CPI-W.

Chained CPI Could Short-Change Retirees

Congress is considering an alternative inflation measure as part of its deficit reduction initiatives. The alternative inflation measure is known as the chained consumer price index or chained CPI. The chained CPI includes an adjustment mechanism that presumably accounts for consumers switching to substitute goods and services when a similar category of goods or services experiences rapid price increases. The overall result of this adjustment for substitutes is a price index that that increases...

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