July 23, 2014

Dewonkify – Chained Consumer Price Index (CPI)

Word: Chained CPI

Meaning: A revised method of calculation for the Consumer Price Index (CPI) that the Bureau of Labor Statistics (BLS) could use to estimate inflation, which takes into account assumptions about how people spend money.

Used in a sentence: “Chained CPI is one of many ways to approximate the impact to consumers’ pocketbooks of rising or falling prices.”

What it really means:  Chained CPI is a clever way of saying “slow the growth of inflation” without actually coming out and saying it.  Currently, CPI is calculated by BLS based on data collected on the prices paid by consumers for goods and services. Chained CPI would add another level to this calculation by taking into consideration what consumers might buy in place of something that has become too expensive.  For example, if you plan on having broccoli for dinner tonight and head to the store to get some, but then you realize the cost of broccoli has gone up since the last time you were in the store, you might settle for spinach instead.  Now, instead of everyone paying more for broccoli, consumers are choosing other vegetables, so the demand for broccoli goes down, and eventually so does the price.  Overall, the impact is a much slower rate of inflation.

The Catch:  So, what does slowing inflation actually mean politically, and why is it suddenly getting all of this attention—from Democrats and Republicans?  You have probably heard chained CPI being discussed as an offset (link to old blog) for part of the current deficit negotiations.  Slowing inflation would be a huge cost saver for the federal government because of all of the programs tied to the CPI, with Social Security the most popular example.  The benefits that seniors receive are updated annually to account for inflation, and that update is calculated based on the BLS CPI estimates.  If chained CPI goes into effect, Social Security checks annual increases could get smaller and smaller.

In addition to Social Security, chained CPI would also slowly affect tax rates because the IRS updates tax brackets based on inflation—this keeps people’s taxable rates in line with cost of living increases in salaries.  If CPI slows down, salaries will rise ahead of the IRS adjustments, meaning some Americans will pay higher taxes.

CPI also determines reimbursement rates for some health care providers in the Medicare system.  Annual updates to these rates would not be as high if chained CPI were implemented.  Given productivity updates and cuts implemented as part of the Affordable Care Act, the slower growth of CPI could cause problems for some providers.

What’s interesting about chained CPI is that it has been supported by both Democrats and Republicans.  Even though it cuts spending (Medicare and Social Security) and raises taxes, it has unique bipartisan support.  While some Democrats are skeptical about the impact it will have on seniors, Obama has been on record supporting it.  The chained CPI proposal was dropped during round one of the fiscal cliff negotiations, but is likely to resurface as Congress looks for a long term solution to the debt.

If you are interested in reading more on chained CPI, see these articles:

“Chained CPI: The Sneaky, Complicated Idea That Could End the Fiscal Cliff Showdown—Explained” (The Atlantic

“What is Chained CPI” (The Washington Post

©2014 Drinker Biddle & Reath LLP. All Rights Reserved

About the Author

Senior Government Relations Manager

Erin Will Morton is a government relations manager in the Washington, D.C., office of Drinker Biddle & Reath; she has been with the firm since June of 2007.  Erin works with a range of non-profit health care clients providing both government relations and association management services.  Through her client endeavors, Erin has developed extensive experience in managing and convening coalitions and building support among coalition member organizations.  She works on a variety of policy areas in the health care arena, including telehealth, medical...

(202) 230-5634

Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.