Using the Consumer Price Index [CPI] to adjust wages, pensions, social benefits, etc. for inflation seems like the equitable thing to do. But one wonders if it may actually be an accessory to an inequity, namely regressive redistribution of wealth.
How so? It begins with the observation that asset-rich consumers benefit from inflation because they can increase their consumption levels by selling, downsizing, or reverse-mortgaging their appreciating house and other real assets. Persons with few assets do not have the same ability.
Thus, it would seem, regardless of CPI adjustments, that the asset-rich are enjoying a net increase in purchasing power while the asset poor are experiencing a net decline. The empty nester, for example, has pension income indexed to the CPI plus large wealth gains on property, whereas the young renter saving to purchase a house may have their income indexed to the CPI (2% to 2.5% annually) but the increments are offset by faster increases in house prices (4% to 7% annually in Canada).
This appears to be one of those subtle redistributions of wealth typical of inflation. Maybe the more appropriate thing to do since inflation experiences can differ across persons is to calculate personal CPIs that better reflect individuals’ true cost of living (which should now be feasible with today’s computers).
Might renters saving for a house be better served by a CPI whose housing sub-index is more sensitive to the price of housing (instead of the current users’ cost approach in the official CPI)? And perhaps the CPIs should be computed inclusive of the benefits of inflation -- i.e. compile a net cost of living where the gains from inflation, notably appreciating assets, are netted out?