CPI Bashing Needed – Moon of Alabama

September 1, 2004

CPI Bashing Needed

Social Security benefits and other programs, are bound to the general price level in the US, officially measured as Consumer Price Index (CPI).

The CPI, as released by the Bureau of Labour Statistics, shows a year over year increase (2004 annualized) of 2002: 1.3%; 2003: 2.5%; 2004: 2.3%.

The CPI is calculated from the surveyed price increases of bananas, cars, medical costs, shelter etc. The biggest single item in the basket is ´primary housing´ with a 22% share. The BLS measures the price changes for this item by calculating an ´owners´ equivalent rent of primary residency´ from nationwide surveys of rents received by landlords. The increases for this part of the CPI are: 2002: 4.1%; 2003: 2.4%; 2004: 2.2%.

Rental vacancy rates are now over 10%, an all time high, guaranteeing low rent increases. But the home ownership rate is over 69% and the National Association of Realtors says the median sales prices of existing single-family homes have increased by: 2002: 7.0%; 2003: 8.0%; 2004: 9.1%.

Mixing the rental price increases with the house price increases at the appropriate weights, the real increase in costs for primary housing are: 2002: 6.1%; 2003: 6.3%; 2004: 7.0%. Including these into the CPI instead of the owners´ equivalent rent leads to a significantly higher CPI values of: 2002: 1.7%; 2003: 3.4%; 2004: 3.4%

The 2004 CPI increase with house prices included is a full percentage point, or 46%, higher then the official CPI increase (which has many additional questionable assumptions).

Some 50 million Social Security recipients should question their yearly CPI-based increases and their vote. Getting a $10 increase per month each year when prices increase by $15 each year is hardly sustainable. Though it might no be your problem now, it may well be that you will depend on such calculations some years from now.

Posted by b on September 1, 2004 at 18:34 UTC | Permalink

Comments

Good points. I am about 15 years away from social security, but I know some older folks who live on their monthly social security checks, and it is painful to see how they have to scrimp constantly to make it through the month. Any unforeseen problems or needs can be devastating, e.g. car repairs, plumbing problems, medical needs not covered by medicare. Routine maintenance is an unaffordable luxury, which contributes to the occasional catastrophic breakdown or major repair/replacement needs.
One thing that bugs me about the reporting on CPI data is that frequently the press report will include a statement along the lines of “when prices for fuel and other highy volatile items are factored out, the increase was only x”, somehow making it sound more reasonable. For people living on fixed incomes, fuel and other basic costs are not something they can just factor out of their monthly needs.
I think we need to shift to a means-tested social security system and provide something a bit more generous to those who rely on it as their sole income in their older years.

Posted by: maxcrat | Sep 2 2004 14:52 utc | 1

As to the future that may loom for the average US-consumer: I guess much depends on people’s expectations. If ‘you’ think that you are somehow entitled to, say, your own house in a fashionable part of the city, one or even two gas-guzzling cars (scrap public transport), flat-screen TV and other high-tech gadgets, designer kitchen, and fancy holidays, you may find the future disappointing. These dreams may turn out to be too costly for an eroding middle class; they are out of the reach of the ever-growing group of the poor, and they are far too humble for the rich, who have to think of the best place for the winter season and of their yachts.

Posted by: teuton | Sep 3 2004 9:09 utc | 2

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