Obama’s Budget Proposal Will Not Include Chained CPI

February 20, 2014 4:14 PM
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The president’s budget proposal that is due out next month will not include the chained CPI that was included in his budget blueprint from last year, according to Associated Press reports.

A number of Congressmen as well as federal employee advocacy groups were against the chained CPI because of the impact it would have on federal workers.

Federal employee groups were pleased with the news that the proposal is now off the table. NARFE president Joseph A. Beaudoin said, “NARFE is pleased to learn that the President will not, in his Fiscal Year 2015 Budget to Congress, include a proposal to use the Chained CPI to calculate annual COLAs. This flawed proposal should be taken off the table once and for all, and it is heartening to see the President has changed course on the Chained CPI. Our nation’s seniors, veterans and federal retirees should never be pawns in the budget game.”

What is the Chained CPI?

While the usual consumer price index (CPI) deals with the rise and fall in fixed items, a “chained CPI” would also consider  choices people may make as a result of changes in their behavior. For example, if the price of beef goes up, many people will buy chicken instead because it may be a substitute that costs less. Also, when the price of a product goes up, people will probably buy less of that product.

The chain weighted CPI incorporates changes in both the quantities and prices of products. When it comes to calculating costs for multibillion dollar programs like Social Security, a chained CPI is likely to mean that benefit increases do not rise as much. Over time, benefits, payments, and pensions that are adjusted with CPI calculations could all fare differently under chained CPI rules.

For more information on how a chained CPI could impact your federal retirement benefits, see How Bad is the “Chained CPI?”

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About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.