GOP Joins Call for Change in Price Indexing : Budget: House leaders concur with Fed chairman that inflation rate is overstated. Reforms could reduce deficit by $150 billion, some estimate.

Republican congressional leaders this weekend joined Federal Reserve Board Chairman Alan Greenspan in calling for changes in the consumer price index to eliminate what they claim is an overstatement of the true rate of inflation--changes that Greenspan estimated last week could reduce the federal budget deficit by $150 billion over the next five years.

The proposed changes involve technical issues, such as how to measure the inflationary effect when a higher-priced product is better in quality, or when consumers substitute cheaper products for more expensive ones -- buying hamburger, for example, when the price of steak goes up.

But because so many federal budget items are linked to the consumer price index, the proposed changes have taken on the appearance of a free lunch for politicians, who see it as a painless way to cut the deficit. A lower reported CPI would mean smaller payouts to federal retirees, Social Security recipients and others whose cost-of-living adjustments are pegged to the index. That, in turn, would reduce the federal deficit, without any formal cuts in programs.

“I think it should be done,” House Majority Leader Dick Armey (R-Tex.) said Sunday on ABC-TV’s “This Week With David Brinkley.” Cost of living adjustments “have always been a problem” for the budget, he said.

The Bureau of Labor Statistics agrees that some changes in how it figures the CPI may make sense. Katharine G. Abraham, commissioner of the bureau, said the CPI probably overstates the true rate of inflation, but by considerably less than some of its critics have argued. She said that her agency made some changes in the index last year and that other changes, which probably will lower the inflation rate by about 0.1% this year, take effect this month.

She said, however, that she would be reluctant to make major changes in the CPI until there was a consensus among policy-makers and private-sector users that the changes are appropriate.

Greenspan’s comments that the CPI appears to overstate inflation by 0.5 to 1.5 percentage points is based on an analysis by Fed economists David E. Lebow, John M. Roberts and David J. Stockton, who characterized their estimate of the overstatement as “by necessity extremely rough.”

Recent work at the Congressional Budget Office put the range lower--0.2 percentage points to 0.8 percentage points.