The Consumer Price Index (CPI) is one of the most used indexes to measure the change in prices. Of concern is the increase in prices - inflation. Inflation has many harmful effects on the economy especially those on fixed and low incomes. To reduce the negative impact of inflation on those receiving a variety of social benefits, the government as well as many of other financial entities make cost of living adjusts (COLA) increases based on the CPI. There is debate whether these COLA adjustments based on the CPI are sufficient.

The creators of the ALICE Essential Index argues that how the CPI is computed underestimates the impact of increased prices on low-income families and retirees. The ALICE Essential Index also questions the Federal Poverty Level (FPL) measures.

• Describe how the ALICE Essential Index is different than the CPI.
• Explain which measurement is better for determining COLA for low-income families and defend your decision.