Will You Be Chained to a Smaller Check in Retirement?
How does the Social Security Administration calculate inflation now?
Government officials know that rising consumer prices can erode the buying power of Social Security checks. So each year, they consider whether to provide a cost-of-living adjustment to keep incomes in line with consumer prices.
Their annual decision is based on any changes in prices, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers, prepared by the federal Bureau of Labor Statistics. As this year began, the nearly 62 million Americans receiving Social Security and Supplemental Security Income benefits saw their checks go up by 1.7 percent to keep pace with the rise in the CPI.
Is the CPI a good measure of inflation?
Many economists say the CPI is not a good way to measure what people actually are spending at the store because it doesn’t take into account the common-sense decisions routinely made by shoppers.
For example, if the price of blueberries were to go up, you might not buy them. Instead, you’ll pick up the strawberries that are on sale. When the price of beef is high, you’ll get the pork roast. The thing that matters to your budget is the total cost you pay for all of your groceries when you get to the checkout register, not what any one item costs separately.