Why It's Too Soon To Monkey With The Cpi

Reading press accounts, you might think there was universal agreement that the government's consumer price index overstates inflation. This impression, however, is less the result of expert consensus than political opportunism by would-be budget cutters: If the CPI can be lowered by one percentage point, the deficit will be reduced by $634 billion over the next 10 years--a third of all savings needed to balance the budget. That's because the CPI governs annual cost-of-living adjustments in Social Security checks and other government benefits. What better way to cut benefits than through a seemingly technical adjustment? As an added bonus, a deflated CPI would trump the worry that wages have been flat. Cut the CPI, and presto--real wages are rising.

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