As you may be aware the new budget deal may contain a shift in the use of which Consumer Price Index (CPI) is used for Social Security cost of living adjustments (COLAs).
OK, what the hell does that mean?
The CPI currently used by Social Security for COLA purposes is the CPI-W (Wage earners and clerical workers).
The CPI-W is based on the changes in price of a fixed quantity of goods but is limited to the group of households with at least 50% of the household income coming from clerical or wage paying jobs. This covers about 30% of the population.
CPI-U on the other hand uses the same data but only considers the prices paid for goods and services by those that live in urban areas. This covers about 80% of the population.
Unchained CPI-U (still All Urban Consumers) uses the same data but looks at the shift in where people are spending their money. Population coverage is the same as CPI-U.
Example of difference of unchained:
People stop buying product A because it is too expensive and start buying product B. In CPI-U the same quantities are used in both years to determine the change in prices to figure the index change. In C-CPI-U, the quantities change based on the new spending habits which affects the pricing used to calculate the index change.
To the best of my knowledge there is no C-CPI-W.
But what is the dollar impact to Social Security benefits? See below...
