Isenberg Professor Advocates Chain Consumer Price Index

December 27, 2013

An op-ed essay by Isenberg finance professor, Ben Branch, in the December 27th issue of The Boston Business Journal advocates replacing the Consumer Price Index (CPI) with the Chain Consumer Price Index (CCPI).  The CCPI, notes Branch, offers improved estimates of inflation's impact by accounting for consumer substitutions by cheaper goods and services for those with rising prices (substituting, for example, chicken for beef when the latter's price rises). The current CPI, Branch emphasizes, ignores the impact of such relative price changes.  

 

Instituting the CCPI, Branch continues, would have political implications. Its lower measure of consumer inflation would yield reductions in indexed expenditures on entitlement programs, notably Social Security. Tax collections, adjusted annually to offset inflation's impact, would increase more slowly. For a discussion of the CCPI's policy implications, read Professor Branch's essay here. Its incarnation in the Boston Business Journal is available to subscribers here.