DOD Uses Chain-Weighted Consumer Price Index to Adjust for Inflation > US Department of Defense > Defense Department News

Inflation has affected every American over the past year. This has also had an impact on the Ministry of Defense, affecting the budget for the next fiscal year.

Mike McCord, Under Secretary of Defense (Comptroller) and Chief Financial Officer, testified about the DOD’s 2023 budget and the impacts of inflation during a House Budget Committee hearing today.

“When we saw prices change last year, we took all the information we could gather up until the time we finished the budget at the end of the calendar year and incorporated it into our prices for the year. Fiscal Year 23,” he said.

After consultation with the Office of Management and Budget, DOD added approximately $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 rising compensation costs for service members, he said. .

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

When it comes to inflation, most Americans focus on the consumer price index; however, that’s 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 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 actual history of DOD material and service purchases.

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

The department also uses a number of specific price indices for things like 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 this budget’s capabilities, and we stand ready to work with Congress to find the best solutions.” to address these challenges as we move toward 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 budget items, he said, include:

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

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