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DOD Uses Chain-Weighted Consumer Price Index to Account for Inflation

Inflation has impacted all Americans over the last year. It also impacted the Defense Department, affecting the budget for the next fiscal year. 

A man in a military uniform interacts with a computer system in the cockpit of an aircraft.
Computer Program
Air Force Lt. Col. Josh Linden, a C-130H Hercules navigator with the Connecticut Air National Guard’s 103rd Airlift Wing, programs the flight computer before takeoff. Flight computers such as the ones in C-130H aircraft are built with microelectronics, and the Defense Department must ensure those microelectronics are safe to use before they are installed in weapons systems.
Photo By: Marine Corps Staff Sgt. Hector de Jesus
VIRIN: 200514-M-PC554-039

Mike McCord, undersecretary of defense (comptroller) and chief financial officer, testified about the 2023 DOD budget and the impacts of inflation at a House Budget Committee hearing today. 

"When we saw prices changing last year, we took all the information that we could gather up to the time we finished the budget late in the calendar year and built that into our FY23 pricing," he said. 

After consulting with the Office of Management and Budget, the DOD added about $20 billion to the FY23 budget and $20 billion to its budgets over the next four years to reflect higher inflation for goods and services and the increased compensation costs for service members, he said. 

The DOD budget for FY23 is $773 billion, which is a 4% increase over the FY22 enacted amount and an 8% increase over what the DOD requested last year.  

Missile launches into sky
Engagement Test
Two long-range ground-based interceptor missiles are launched from Vandenberg Air Force Base, Calif., March 25, 2019, in the first-ever salvo engagement test of a threat-representative intercontinental ballistic missile target.
Photo By: Lisa Simunaci, DOD
VIRIN: 190325-D-AD122-002C

When it comes to inflation, most Americans focus on the consumer price index; however, that is not what the DOD uses, he said. 

Instead, the DOD uses the chain-weighted CPI for the gross domestic product deflator, which is required by law and is also more reflective of what the department buys, he said. 

Chain-weighted CPI refers to an analysis of spending patterns to provide a more accurate picture of costs based on the DOD's actual history of purchases of material and services. 

The GDP price deflator measures changes in prices for all goods and services produced in the economy. 

Submarine at sea
Sea Submarine
The Ohio-class ballistic missile submarine USS Louisiana transits the Hood Canal in Puget Sound, Wash., Oct. 15, 2017, as it returns to its homeport following a strategic deterrent patrol.
Photo By: Navy Lt. Cmdr. Michael Smith
VIRIN: 171015-N-TC277-269C

The department also uses a number of specific price indices for such things as fuel, housing costs and health care, he said. 

"Prices have continued to evolve since we finalized our budget. We recognize the impact of global economic conditions on our ability to deliver the capabilities in this budget, and we're prepared to work with Congress to find the best solutions to address these challenges as we move forward toward the congressional oversight of this budget," he said. 

The FY23 budget continues to focus on threats from China and Russia, he said. 

Some of the other items in the budget, he said, include: 

  • A 4.6% pay raise for military and civilians and an implementation of the $15 minimum wage for federal employees and contractors.  
  • $3 billion for microelectronic purchases and research. 
  • $1 billion to respond to the fuel spill at the Red Hill Underground Fuel Storage Facility in Oahu, Hawaii. 

Other items in the budget, he said, include modernizing the nuclear triad, building a resilient space architecture and increasing cyber capabilities. 

 

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