We are familiar with hearing about CPI, which is actually called CPI-U. This is a measure of the average expenditures on selected items by the urban shopper. Fluctuations in these prices have an impact on what the Government perceives inflation to be. In plain English, this tells us if there will be a raise in Social Security payments or not.

As part of the Fiscal Cliff negotiations we are now introduced to Chained-CPI. Chained-CPI attempts to account for how we react to inflated prices. Would we buy cheaper meat or more house brand products if we feel that prices are rising? It follows the chain of spending. But why make a change now from the standard CPI-U to Chained-CPI?

Making this change would mean paying out less in Social Security benefits over time. Chained-CPI would lead to a larger across-the-board cut in Social Security benefits and a .19% income surtax.

Will Chained-CPI become the new policy? Watch the news and the Fiscal Cliff negotiations to find out.

disclosures:http://www.hechteffect.net/?page_id=31