Good Question: How Do We Measure Inflation?
MINNEAPOLIS (WCCO) -- Starting next year, Social Security benefits will rise 1.7 percent -- or about $20 a month based on an average monthly Social Security payment of $1,192.
That increase, or cost-of-living adjustment (COLA), has been pegged to the consumer price index (CPI) since 1975. It's one of several ways to measure inflation.
So, how do we measure the CPI?
"It's kind of complicated because there are lots of variables," said Dr. David Vang, a professor of finance at the University of St. Thomas School of Business. "But primarily they have a basket of goods that the typical consumer would buy in any given month, and they monitor those prices."
Prices in 87 urban areas are gathered each month on hundreds of goods ranging on everything from apples to electricity to doctors' visits and funeral home expenses.
"I think the general perception is that the cost of living is going up," said Chris Webley of Minneapolis.
But we are actually living in an age of record-low inflation. According to the Associated Press, the COLA increase was less than two percent only three times in its first 35 years.
"Part of it is coming out of the recession," Vang said. "The economic growth has not been driving prices up."
He also says inflation occurs when there's more money chasing after goods than there are goods. So while there is more money available these days, Vang says people are "sitting" on it.
According to the Bureau of Labor Statistics, new cars are up 0.3 percent, medical care is up 1.7 percent, clothes have risen 0.5 percent and both shelter and food have jumped 3 percent.
Gas has fallen 3.6 percent along with airfare, used cars and tobacco.
