Robert Reich: Everything You Need to Know About How Chained CPI Will Screw Over Seniors

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12. Here's how it works

You have to include quantity (as portion of spending) in a price index as a 100% price increase for a pack of gum is much less significant than a 0.1% increase in the price of a car. So the amount spent on an item as a percent of total spending is the weight. The current method assumes the same weights from one time period to the next, while the chained CPI uses an average of the 2 periods.
So if beef was 30% of meat spending in period 0 and the price has gone up 5% then that would be a 1.5% upward push on the meat index. But what if beef had dropped to 29% as substitution occurs? Using that weight, beef would have a 1.45% impact on the meat index. A chained index would put the weight at 29.5% and the impact would be 1.475%

And if crab prices go down 20% and % of meat goes from 1% to 1.5%, that would be a -0.25% on the overall index.