A Consumer Price Index for Retirees and Alternatives for Controlling Indexing

It has been suggested that a separate price index, constructed for retirees and used in lieu of the existing Consumer Price Index (CPI) as the basis for adjusting benefits under various Federal retirement programs, would be more equitable for retirees. GAO constructed such an alternative CPI, reweighting the expenditure and geographic data to reflect the consumption patterns and geographic distribution of the retired population. GAO then recomputed the resulting index with the existing CPI and also tested the consequences of using a new method of calculating the housing component of the CPI. GAO found no evidence that a separate CPI for retirees would deviate markedly from the current CPI during the period covered by the review, once the treatment of housing in the CPI is corrected. Accordingly, GAO recommended against creating a separate price index for retirees. GAO has recommended that Congress enact legislation requiring that a CPI based on the consumption patterns of all urban households, rather than one limited to urban wage earners, should be used in constructing future cost-of-living adjustments in Federal retirement programs, because it reflects a broader population base and its housing component will be corrected by 1983. It is impossible to predict with confidence the budgetary effect of this recommendation. The Bureau of Labor Statistics should periodically monitor the question of using another index for the Federal retirement programs. GAO believes that it is time to bring indexing as a whole under control, because indexed programs account for about one-third of the budget and because continuing to insulate the benefits of one group would be inequitable. In addition, the indexation of entitlement programs has been a major factor in the growth of that portion of the budget which is uncontrollable in the short run. The President and Congress should have the discretion to modify, through the budget process, the amount of the adjustment indicated by the index. This approach would restore flexibility by permitting the President and Congress to make decisions balancing budgetary considerations annually against the desire to maintain the real level of benefits.