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It appears that everyone that is currently receiving Social Security benefits will be a loser in the fiscal cliff agreement. It is being widely reported that SS will change from the current inflation measure CPI-U to "chained CPI." The net effect will be about a 0.3% lower inflation rate used to calculate the yearly increase in SS benefits.

If you think that the current CPI is already understated, this is NOT good news. This is being labelled as a "spending cut" by both sides.

Washington has been trying to convert over to the chained CPI for several decades. The main difference is how much "substitution" is used in the calculation. The theory is that as one item gets more expensive, consumers will switch to an alternate item. The most common illustration is going from steak to chicken. The current CPI-U already allows for some substitution, aka hedonics, so I am not sure how they decided on using more.

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