IDEAS home Printed from https://ideas.repec.org/p/crr/issbrf/ib2015-18.html
   My bibliography  Save this paper

Do We Need a Price Index for the Elderly?

Author

Listed:
  • Alicia H. Munnell
  • Anqi Chen

Abstract

As announced recently, Social Security will not pro­vide a cost-of-living adjustment (COLA) in 2016. This news will prompt some to argue that using a more ap­propriate index of inflation for the elderly would have shown an increase in prices. These critics contend that the Consumer Price Index (CPI-W) currently used for the Social Security COLA does not reflect the spending patterns of older Americans and therefore understates inflation. They urge the adoption of a special price index designed to reflect the spending patterns of Social Security beneficiaries – a CPI-E. This brief explores the relationship between the CPI-W and the experimental CPI-E. While historical­ly the CPI-E has risen faster than the CPI-W, despite a big gap in 2015, the average for the two indexes over 2002-2015 has been virtually identical. The questions are: What was driving the historical relationship? And why has the pattern changed? The discussion proceeds as follows. The first section describes the calculation of the Social Security COLA. The second section introduces the CPI-E as a potential alternative index for determining the COLA. The third section reports the relationship between the CPI-W and the CPI-E since 1983 and shows how that relationship has changed in recent years. The fourth section finds that the two indexes, on average, have been virtually identical since 2002 primarily because of slower growth in medical care costs, on which the elderly spend relatively more. The final section concludes that, if medical cost inflation continues to be held in check, the two indexes may remain quite similar. But if medical costs start surging again, it may be time to use an index designed specifically for older Americans.

Suggested Citation

  • Alicia H. Munnell & Anqi Chen, 2015. "Do We Need a Price Index for the Elderly?," Issues in Brief ib2015-18, Center for Retirement Research.
    • Handle: RePEc:crr:issbrf:ib2015-18
    as

    Download full text from publisher

    File URL: http://crr.bc.edu/briefs/do-we-need-a-price-index-for-the-elderly/
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Damiaan Chen & Roel Beetsma & Sweder van Wijnbergen, 2022. "Intergenerational Sharing of Unhedgeable Inflation Risk," Working Papers 758, DNB.
    2. Chen, D.H.J. & Beetsma, R.M.W.J. & van Wijnbergen, S.J.G., 2020. "Unhedgeable inflation risk within pension schemes," Insurance: Mathematics and Economics, Elsevier, vol. 90(C), pages 7-24.
    3. Chen, Damiaan H.J. & Beetsma, Roel M.W.J. & van Wijnbergen, Sweder J.G., 2023. "Intergenerational sharing of unhedgeable inflation risk," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 140-160.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:crr:issbrf:ib2015-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Amy Grzybowski or Christopher F Baum (email available below). General contact details of provider: https://edirc.repec.org/data/crrbcus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.