Does the Govt "Bend" the CPI Calcs?

[TheFIREman]

An article from CNBC (I know ) about the calculation of CPI and a warning to those who trust in TIPs:

http://moneycentral.msn.com/content/P72746.asp

 

[Michael]

As the boomers retire, I would expect even more liberal use of this type of creative accounting. I fully expect that future CPI adjusted Social Security payments will lag the true cost of living increase for the elderly. TIPS and such will put additional pressure on government accountants to keep the official CPI increase to a minimum, as this will minimize government expenditures on interest. I would plan on this in any calculations. However, TIPS can still have a place as part of a portfolio, as long as their limitations are taken into account.

 

[TheFIREman]

Couldn't agree more. TIPs are still the best way to at least match, if not beat, real inflation. I do hope the market develops a standard and more accurate inflation measure to check the work of those public bean counters.

 

[Peter]

I fully expect that future CPI adjusted Social Security payments will lag the true cost of living increase for the elderly.

Too true, unfortunately.

And yes, it's also a worry for TIPS holders ... but in fact any projection that uses the CPI to calculate actual future living costs may be giving an optimistic view.

My own worst case assumption is that my investments just keep pace with actual inflation. The question then is: how much more than the CPI? My crystal ball is cloudy on that one ...

Peter