For CPI-E fans, the Social Security COLA would have been 4.8% rather than 5.9%
In light of the recent announcement of a 5.9% cost-of-living adjustment for Social Security benefits in 2022, a reporter asked what the number would have been based on the often-advocated CPI-E, the experimental index for the elderly.My trusted colleague, Patrick Hubbard, came back with 4.8%. I sighed with disappointment, reminded him that he knew that the CPI-E rises faster than the CPI-W , and sent him away. He returned a few minutes later with the same number and a story to boot.
Read: The largest COLA hike in 40 years is coming to Social Security in 2022 — what that means for your retirement What has changed is the rate of medical inflation. Healthcare costs are rising at a much lower rate than in the past. And between the third quarter of 2020 and the third quarter of 2021, they barely rose at all . Since this low-inflation component receives twice the weight in the CPI for the elderly as it does in the CPI-W, the CPI-E increased more slowly.
More important, the CPI-E is not a real price index. It simply re-weights the data collected for the population as a whole. As a result, it suffers from several flaws.First, a relatively small number of households are used to determine expenditure patterns. Second, prices are based on the same geographic areas and retail outlets used by younger people. Third, the items sampled may not be the same as those bought by the elderly.
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