CPI-E

Using the CPI-E intended to better reflect growing inflation affecting the Social Security population gets a lot of publicity. That press may be creating unrealistic expectations.

While the CPI-E has frequently, but not always, been higher than the CPI-W, that difference has generally been a few tenths of one percent. The driver for the CPI-E is health care spending.

Therefore the assumption that for the elderly the CPI-E will be higher depends largely on health care inflation and out-of-pocket spending. Moderating health care inflation or higher Medicare benefits will lesson the value of the CPI-E.

From December 1982 through December 2011, the all-items CPI-E rose at an annual average rate of 3.1 percent, compared with increases of 2.9 percent for both the CPI-U and CPI-W. There are several reasons that older Americans faced slightly higher inflation rates over the past 29 years. First, older Americans devote a substantially larger share of their total budgets to medical care. The share of expenditures on medical care by the CPI-E population is roughly double that of either the CPI-U population or the CPI-W population. In addition, over the 1983–2011 period, medical care inflation increased significantly more than inflation for most other goods and services (5.1 percent annually for medical care, compared with 2.8 percent for all items less medical care). Second, older Americans spend relatively more on shelter, and during the last 29 years shelter costs have modestly outpaced overall inflation.

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