The Wonky Inflation Tweak Worth Over $200 Billion : Planet Money How a budget deal proposal slows the growth of Social Security and raises taxes.
NPR logo The Wonky Inflation Tweak Worth Over $200 Billion

The Wonky Inflation Tweak Worth Over $200 Billion

A woman purchases a book.
Amy Sancetta/AP

One of the wonkier details in the budget debate — how the government measures inflation — could lead to over $200 billion in lower spending and higher taxes over the next decade.

As we noted last year, the government's main measure of inflation, the Consumer Price Index, is the basis for lots of annual adjustments. When CPI goes up a lot, so do Social Security payments, for example.

Under one proposal on the table, the government would stop using the plain vanilla Consumer Price Index (CPI) and start using something called chained CPI.

The chained CPI is updated every month to reflect changes in people's buying habits, while the regular CPI is updated every two years. The WSJ explains the details:

The main Consumer Price Index is a measure of the average price change of a fixed basket of goods and services purchased by the average urban household; that doesn't reflect the reality that when, for instance, the price of pork goes up and the price of beef doesn't, consumers tend to shift from pork to beef.... The chained CPI generally increases more slowly than the main CPI measure.... Spread across the entire budget, chained CPI is a big money maker.

Over the course of a decade, Social Security and other federal benefit payments could rise by $145 billion less under chained CPI than they would under regular CPI, according to the CBO.

Tax brackets and tax deductions are also adjusted based on inflation. Switching to chained CPI could lead to an extra $72 billion in tax revenues over a decade, the CBO estimates.