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Greenspan Wants To Adjust Inflation Gauge

Tue., Feb. 6, 1996

Federal Reserve Chairman Alan Greenspan renewed his call Monday for smaller cost-of-living adjustments in taxes and federal retirement programs.

As he has in the past, Greenspan said the Consumer Price Index - the government’s main gauge of inflation - overstates inflation and should be adjusted. He said the CPI does not measure changes in the cost of living, but rather “endeavors to capture targeted prices at the retail level.”

In so doing, he told the National Governors’ Association, it fails to catch changes in consumer preferences for less expensive items and changes produced by new technologies.

As a result, he contended, the CPI is biased higher than actual changes in the cost of living. He has said that the index overstates inflation by between 0.5 and 1.5 percentage points.

Adjusting the gauge to a realistic level, he said, would result in “substantial savings.”

Greenspan had told Congress a year ago that such alterations by an impartial panel of experts could save taxpayers $150 billion over five years. He renewed his appeal for legislation authorizing the changes.

The CPI is used to make annual cost of living adjustments for millions of Americans receiving Social Security and other government benefits and for determining tax rates.

Tags: business

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