Quote:
Originally Posted by gauss
I guess the question in my mind is why are the powers that be pushing for C-CPI (other than it reduces costs) if substitution effects are already being implicitly included in CPI?
The arguments against CPI that I recall were that folks would keep buying things as they became relatively more expensive was not realistic. It sounds like consumer substitution is already being captured in CPI via actual purchase decisions although it may be implicit.
-gauss
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IMHO- Push for C-CPI is that it gives an "above board" way to adjust the final inflation number used in calculating benefits. The substitution effects are buried in the methodology so perhaps less easy to precisely control.
In the end I basically agree with Running_Man that measured overall inflation is typically tied to median income. BLS tracks what folks actually spend on stuff, and folks tend to spend more as their income rises.