United States Chained Consumer Price Index

The weights for CPI-U and CPI-W are currently updated in January of every even-numbered year to correct for "substitution bias", the idea that consumers will change their buying patterns to keep their cost of living from rising as quickly as inflation.

Various public and private organizations use CPI data for Cost of Living Adjustments (COLAs) for programs like Social Security and for provisions of the tax code.

Currently most programs are indexed to the CPI-U or the CPI-W.[1] Changes in consumer prices are used to determine issues such as Cost of Living Adjustments, so any reduction in the official estimate of inflation would reduce payments to workers and retirees.

The Moment of Truth Project estimates that moving to the Chained CPI would reduce the deficit by about $390 billion in the first decade alone, with roughly one third of the savings from Social Security, another third from increased federal revenue (via inflation-indexed tax provisions such as more slowly growing tax bracket thresholds), and the remaining savings from a combination of other spending programs and reduced interest on the debt.

[2] The Congressional Budget Office estimates switching to the chained CPI would save $340 billion [3] Applying the chained CPI beginning in 2015 instead of 2014 and accompanying it with "low income protections" would save $230 billion [4] In 1996, the Advisory Committee to Study the Consumer Price Index (the Boskin Commission) estimated that in 1996 CPI-W (used to adjust Social Security) over-estimated inflation 1.1 percent.

The BLS responded by making changes to the CPI-U and CPI-W, which included an adjustment to compensate for upper-level substitution bias, performed each January of an even-numbered year.

[8] In 2012 and 2013 as part of the fiscal cliff negotiations, President Obama repeatedly proposed the application of chained CPI to social security benefits as a way to address budgetary shortfalls.

The argument is that because veterans and the disabled collect benefits before retirement age, they would stand to lose a more significant share of income from Social Security and other programs over time.

Furthermore, Chained CPI has been depicted as a regressive piece of social policy, as persons earning between $30,000 and $40,000 will be disproportionately impacted by the lowering of the inflation adjustment for income.