Rum and Kook a COLA

March 29, 2010 by Dick.

There is no inflation. The Cost of Living hasn’t risen for several quarters.

Cost of living is by definition the cost of maintaining a certain standard of living.

Employment contracts, pension benefits, and government payments such as your Social Security check can be tied to a cost-of-living index, typically to the CPI or “Consumer Price Index.”

The CPI reports the average price of a lot of stuff — what is called a constant “market basket of goods and services” — purchased by average households. According to Bloomberg Business News, the CPI wonks add up and average the prices of 95,000 items from 22,000 stores and 35,000 rental units. Those prices are weighted by assuming that you distribute your spending along strict percentages. Housing: 41.4%, Food and Beverage: 17.4%, Transport: 17.0%, Medical Care: 6.9%, Other: 6.9%, Apparel: 6.0%, and Entertainment: 4.4%. Taxes are exempt from the CPI totals so when your property tax or sales tax or income tax or Cadillac health care tax or gasoline tax or telecommunications tax or blue cheese tax rises, it doesn’t actually cost you any extra.

In calculating the CPI, the U.S. Bureau of Labor Statistics uses a formula that reflects the fact that consumers shift their purchases toward products that have fallen in relative price. Although this substitution game means the BLS reduces what we pay by “living with” store brands instead of name brands, BLS says my analysis is incorrect. Their objective “is to calculate the change in the amount consumers need to spend to maintain a constant level of satisfaction.” As long as the BLS gets to define “satisfaction.”

Where, oh where is Mick when we need him?

The Social Security Administration writes, “Since 1975, Social Security’s general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index. We call such increases Cost-Of-Living Adjustments, or COLAs. Because there has been a decline in the Consumer Price Index, there will be no COLA payable in 2010.”

• Campbell’s Cream of Tomato soup costs between 80 cents and $1 per can in most markets today. Do you remember when it was 40 cents? I do. But the Cost of Living has declined.
• A five-pound bag of flour costs about $2.49 in most markets today. Do you remember when it was a buck? I do. But the Cost of Living has declined.
• Gasoline costs between $3.50 and $4 per gallon in most markets. Do you remember when it was $0.999? I do. But the Cost of Living has declined.
• According to USAToday, health insurance premiums cost about $13,375 per annum last year. (And despite the new law, insurers say they do not have to cover kids with pre-existing conditions.) Do you remember when a family policy cost $2,500? I do. But your premiums will still go up. And, of course, the Cost of Living has declined.
• Milk costs between $3.50 and $4 per gallon in most markets. Do you remember when it was $1.75? I do. But the Cost of Living has declined.

I wish stuff didn’t cost so much but even more I wish our “leaders” didn’t lie to us about stuff costing so much. Oddly, I cannot vote myself a raise.

Posted in Business, Politics & News, PC, Random Access | 6 Comments »