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What is chained CPI?

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Quick Answer

Chained CPI stands for Chained Consumer Price Index. This index is an assessment of consumer spending habits used to determine how much the cost of living has gone up in certain areas or throughout the country. The index uses 211 categories of goods and services in 38 geographical regions.

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Chained CPI uses over 8,000 elementary indices to make inflation evaluations, and includes two types. The first type of CPI encompasses all consumers, while the second is only used for urban wage earners and clerical workers. Because there are different types of goods in each index used to calculate CPI, there is a built-in function that allows for people substituting one type of good for a more inexpensive version of the same type of good.

A reduction in people buying a specific product is not registered as a reduction in people buying that product type. In 2013, President Obama proposed a budget that connected social security benefits to the type of CPI that only applies to urban wage earners and clerical workers. In the past, the benefits were connected to the CPI for all consumers. The change would mean that said benefits would increase more slowly than they had in the past.

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