Should we use CivPay Inflation Indices when accounting for inflation for government employees, or should we use OMA Inflation Indices, since they're paid with OMA dollars?
This question came up when noticing that the BY to BY inflation rate for CivPay from 2011 to 2012 was 1.0000. This is due to the federal employee pay freeze, where Base and Locality pay did not change. However, the buying power of the dollar did change from 2011 to 2012 (inflation occurred; OMA BY11$ to BY12$ conversion is a 1.0180 rate). So, another way to look at this question would be: do we account for the fact that the buying power of the dollar changed from 2011 to 2012, or do we note that the cost of a federal employee did not change from 2011 to 2012? Please note that we are considering the fully burdened cost of a government employee, to include benefits above and beyond Base and Locality pay, alone.
If you say to use OMA, I would ask why we are accounting for inflation when the value of a government employee decreased such that the same amount of physical dollar bills would pay an employee's salary in 2011 as in 2012, even though the value of those physical dollar bills changed. We could have taken a government employee's fully burdened salary in 2011, placed it all in a shoebox (albeit a very large shoebox), kept it aside for a year, and been able to pay that employee's salary in 2012 with those same dollar bills, even though those dollar bills could not buy the same amount of bread or milk as they could have in 2011.
If you say to use CivPay, I would ask why we aren't concerned about the value of the dollar changing from year to year when we're paying them with OMA dollars of differing values. Paying someone 100 physical dollar bills in 2011 and 100 physical dollar bills in 2012 is like paying someone 100 pesos and 100 yen: yes, they have 200 physical items, but the value of 100 pesos is not the same as the value (buying power) of 100 yen; same as 100 'dollars' in 2011 isn't worth the same as 100 'dollars' in 2012, which isn't worth nearly as much as 100 'dollars' were back in 1950, despite them all having the same name.
Our office has internally been able to effectively argue both sides, so any insights would be greatly appreciated, thank you.
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The CivPay inflation rate only takes into account the civilian pay raise while the OMA inflation rate takes into account more than the civilian pay raise. Thus, it is better to use the CivPay inflation rates when inflating government civilian costs.
We use the civilian pay inflation rate because these rates represent the growth of actual cost of the civilian to the government. Your point about the actual purchasing power decreasing is relevant, but what we budget for is based on the cost to the government.
OSD inflation rates published for the out year forecast may seem low when compared to private sector economic forecasts. This is because the OMB inflation rates reflect policy goals rather than a consensus of forecasters.