By Natalie DeCoste
The impact of rising prices for various consumer goods is pushing up the expected Social Security cost-of-living adjustment.
According to calculations by The Senior Citizens League, a non-partisan senior group that bases its estimates on Consumer Price Index data from the Bureau of Labor Statistics, the latest estimate for next year’s Social Security cost-of-living adjustment (COLA) has increased to 5.3%.
The Consumer Price Index (CPI) rose 5% in May from a year earlier, the largest 12-month increase since a 5.4% increase in August 2008. The jump outpaced the 4.7% increase that economists expected. This month’s rise is an acceleration from the 4.2% rise that occurred in April.
The most important figure for the COLA calculation is the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The CPI-W is based on the expenditures of households included in the CPI-U definition who have more than half of the household’s income come from clerical or wage occupations and have at least one of the household’s earners employed for at least 37 weeks during the last 12 months.
The people who make up the CPI-W account for 29% of the total U.S. population. Year over year, the CPI-W figure increased 5.6%.
This new figure is a substantial increase over the COLA implemented for 2021, which was 1.3%. The COLA for 2021 was the most significant increase in more than a decade, but 2022 will seemingly trounce the prior growth. If the new calculations go into effect, this will be the highest annual adjustment since 2009, when benefits saw a 5.8% boost.
The figure is even an increase from predictions just a month earlier in May when The Senior Citizens League predicted that Social Security recipients might get a 4.7% COLA in 2022. The change in the COLA is because inflation is at such a high level, meaning the COLA is likely to change again before the 2022 COLA is officially announced in October 2021.
It remains to be seen if retired individuals will get such a significant increase to their monthly Social Security checks. The COLA depends a great deal on the economy, including whether the Federal Reserve decides to raise interest rates.
“A lot is going to depend on what happens next. If they announce that they will be raising interest rates, it will be very interesting to watch how that would impact the COLA,” said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.
Even if the COLA does increase the full 5.3% that is currently expected, it is unlikely that Social Security recipients will experience anything more than a minimal benefit. This is because the actual inflation rate for necessary items like food and gasoline will be higher than the COLA increase. The Wall Street Journal reported that 48% of small businesses had raised their average selling prices in May. This increase is the highest this has been since 1981.