Inaccuracies in the Consumer Price Index Used to Calculate the Social Security Cost Of Living Adjustment
RetireSafe believes that the current method of calculating the Cost Of Living Adjustment (COLA) for your Social Security benefits is flawed and underestimates the true inflation for older Americans.
The Bureau of Labor Statistics (BLS) of the Department of Labor says the following regarding its current Consumer Price Index (CPI), “The CPI is subject to both limitations in application and limitations in measurement.” BLS goes on to say:
“The CPI may not be applicable to all population groups. For example, the CPI-U is designed to measure inflation for the U.S. urban population and thus may not accurately reflect the experience of people living in rural areas. Also, the CPI does not produce official estimates for the rate of inflation experienced by subgroups of the population, such as the elderly and the poor. (BLS does produce and release an experimental index for the elderly population; however, because of the significant limitations of this experimental index, it should be interpreted with caution.)” [That CPI is the CPI-E.] One of these limitations is, as the BLS states, “[The CPI-E is] based on a much smaller sample than the other two indices, making it less precise.”
While the experimental CPI-E would probably be more accurate, BLS continues using the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) to officially chart changes in inflation for seniors. The often-repeated BLS caveat detailed above keeps the CPI-E from being used officially for seniors, despite significant Congressional support for it.
RetireSafe believes that a new CPI for Seniors needs to be calculated. A CPI that is accurate for older Americans.