Price Index May Overstate Inflation (225)

KNOXVILLE, Tenn. — The Consumer Price Index may overstate inflation, but not every year by 1.1 percent as reported by the Boskin Commission of the U.S. Senate Finance Committee, a University of Tennessee economist said Thursday.

Dr. Matt Murray of the UT Center for Business and Economic Research said he agreed with the commission’s basic finding — that the CPI overstated inflation.

“I disagree with the simplistic conclusion that it is always going to be 1.1 percent,” Murray said. “I don’t understand how that can be.

“You go back to the Carter-Reagan era when we had 10-15 percent inflation, versus now when we’ve got three percent. They are saying you just shave the same 1.1 percent off the index? I don’t buy it. I don’t see how that works.”

The commission’s findings are part of the Washington debate about whether government should cut back cost-of-living increases for Social Security and other federal benefits that are pegged to the CPI.

“My sense is that there is some politics at play here in an effort basically to get more revenue,” Murray said. “Because if we can bring that measure of inflation down, we can bring down the kind of cost-of-living increases that we provide to Social Security recipients and so on.”

Michael Boskin, who headed the panel that studied the CPI, recently surveyed 24 fellow economists to see if they agreed with the commission’s findings. They did. Murray was not surveyed.

Contact: Dr. Matt Murray (423-974-5441)