Price Deflators, the Trust Fund Forecast, and Social Security Solvency

Barry Bosworth

Working Papers, Center for Retirement Research at Boston College from Center for Retirement Research

Abstract: The differential in the growth rates of the GDP price deflator and the CPI-W has a significant effect on the projected actuarial balance of the Social Security trust fund. When the CPI-W grows at a faster rate than the GDP deflator, projected benefits increase relative to the growth in program income. This study is directed toward measuring the sources of the difference in the two growth rates and its likely magnitude in the future. The study concludes that there no basis for expecting a consistent difference between the rate of consumer price inflation and that for the overall economy as measured by the GDP price deflator. However, because of differences in the methods of computing the two price indexes, the growth in the CPI-W can be expected to exceed the increase in the GDP deflator by about 0.2 percent per year. This differential is about half that currently assumed within the Social Security Trustees report.

Pages: 22 pages
Date: 2010-10, Revised 2010-10
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