Commentary: The Cpi: Why Politicians Should Butt Out

It has become a familiar refrain in recent months. Federal Reserve Chairman Alan Greenspan and other economists have argued that the consumer price index should be lowered because it overstates inflation--a position that delights budget-whacking politicians on Capitol Hill. Because Social Security benefits and tax thresholds rise with the CPI, lowering the index would therefore cut automatic increases in government spending and raise taxes. Indeed, a new budget proposal by House Republicans contains $52 billion in spending cuts and tax hikes over four years on the assumption that the Bureau of Labor Statistics will reduce the index.

An easy fix, yes--but a bad idea. The reason: The CPI understates inflation as well as overstates it, other economists say. And no one is yet sure of the net result.