Drop by Drop

During the month of September, American consumers saw the overall price of goods rise by .2%, as measured by the Consumer Price Index report recently released by the Department of Labor.  A separate measure called the Core CPI, which omits food and energy prices, also rose by .2%, leaving both measures slightly above consensus expectations.  Looked at on a year-over-year basis, the larger headline index has actually declined by 1.3%, slightly less than the 1.4% decline we saw for August’s annualized numbers.  The core rate, on the other hand, is up 1.5% Y/Y.  This shrinking of the larger overall index creates a new dilemma for Washington.  Since cost of living increases for Social Security are tied to inflation as measured by the headline CPI, the negative annualized number means there will be no hike in 2010 for recipients of this program.  Some will actually see their checks shrink after next year’s Medicare premiums are deducted.  Given the rancorous debates about health care and other entitlement spending programs currently being waged across the country, the administration seems to fear this will just pour fuel on a fire.  Thus, President Obama is asking Congress to give some 50 million senior citizens and extra $250 each to help tide them over.  While that amount may seem like just a drop in the bucket, the White House estimates the total cost will amount to some $13 billion in new deficit spending, still but a mere pittance when you consider the number of votes that are at stake.  Luckily for them, children can’t vote.