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Computer Glitch Forces Upward Revision of CPI As seniors brace for rate increases as high as 30% for their supplemental health insurance policies, sky-high heating oil prices, and prescription drug spending that is growing by more than 17% annually, a recent revision to the Consumer Price Index (CPI) may mean a few cents more in monthly benefits-and then, maybe not. Recently the Bureau of Labor Statistics (BLS) announced that a computer glitch caused it to understate the rate of inflation. The BLS corrected the CPI by raising the inflation rate 0.1 percentage point. The upward revision provides little relief for seniors, however. That's because other revisions made by the BLS tend to reduce the CPI by as much as 0.17 percentage point per year, causing it to grow more slowly. The upward revision of published data was a highly unusual move for the BLS. The CPI is used to calculate Cost-of-Living Adjustments (COLAs) in Social Security payments, veterans' benefits, federal pensions, and private contracts. The BLS hasn't revised published CPI data since the index was first used to adjust payments in 1975. For a Social Security recipient with average benefits, an additional 0.1 percentage point would be worth about 80 cents per month. The BLS substantially stepped-up its revision schedule in 1998, from making a major revision of once every decade, to once every two years. According to a BLS estimate, if the new revision schedule had been used over the past 12 years, inflation would have grown by about 0.17 percentage point more slowly per year. The revisions have an enormous impact on the federal budget surplus. In 1998, the General Accounting Office estimated that if CPI growth were reduced by 0.1 percentage point annually, the budget surplus generated by lower Social Security COLAs and other federal payments would be $16.5 billion over a five-year period. Sources: "Future Schedule for Expenditure Weight Updates in the Consumer Price Index," Bureau of Labor Statistics, December 18, 1998. "Revised CPI Up 3.5%," John Berry, The Washington Post, September 28, 2000. "From Ink Eradicator to Fixing Glitches, CPI Work is Meticulous," Bloomberg News, September 28, 2000. This article first appeared in Volume 6, Issue 2 of "The Social Security and Medicare Advisor" newsletter (December/January/2001). To receive future editions of "The Advisor" in its special, free e-mail version, please click here. | ||||||||
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