The current CPI measures the cost of a fixed market basket of goods and services purchased regularly by a typical working household. By contrast, the chained CPI alters the weights of the items in the index to reflect changes in consumers’ buying patterns as relative prices change.
For example, if the price of meat goes up one month and the price of fish goes down, people will buy less meat and more fish. This means that their cost of living will go up more slowly, and thus their cost of living adjustment (COLA) will go up by less than it otherwise would.
But as far as seniors are concerned, the current COLA does not begin to cover the rise in their cost of living. This is because once someone retires, their expenses as a percentage of household income change.
Retirees buy fewer cars, houses and electronics — the prices of which are steady to falling — than do their younger, employed counterparts. On the other hand, they spend more on health care, food, energy and local taxes, for which prices, guess what, are actually rising faster than the current CPI. — Marketwatch