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President Obama has proposed replacing the regular consumer price index, or CPI, to adjust Social Security benefits with the chained CPI -- often called the cat food CPI because the index assumes that when the price of human food rises, seniors can substitute cheaper food to get the same nutrition.
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The increase for a coming year is based on inflation between the third quarter of the prior year and the third quarter of the current year, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. In the third quarter of 2008 energy prices and the CPI-W spiked, giving beneficiaries a hefty 5.8 % COLA for 2009.
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Other, more traditional measures, such as the consumer price index (CPI) are merely lagging indicators of inflation or deflation that has occurred already.
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