For the most current information on the latest Department of Labor CPI-W release and its potential effect on Social Security and SSI COLAs, please follow this link to see my most recent post on this topic. Thank you.
Social Security determines its succeeding year’s COLA in October each year by comparing the average CPI-W for July through September of that same year to the average CPI-W for July through September of the last year which produced a COLA. I call this the “baseline.”This year, the baseline we are working from is the period from July through September, 2008, which generated a 5.8% COLA in 2009. The average CPI-W for July 2009 through September 2009 and the average CPI-W for July 2010 through September 2010 did not exceed the baseline (the 2008 average.)
The Baseline CPI-W Amounts
July 2008 CPI-W: 216.304
August 2008 CPI-W: 215.247
September 2008 CPI-W: 214.935
2008 Average CPI-W: 215.495. This is shown as the bottom gray line on the graph.
Since then the CPI-W has been lower, until January, 2011. The months we are now concerned with are July through September, 2011. What happens before then shows a trend line and may be predictive.
Current CPI-W Amounts
July 2010 CPI-W: 213.898
August 2010 CPI-W: 214.205 (+ 0.14%)
September 2010 CPI-W: 214.306 (+ 0.05%)
(The average CPI-W 07/10 thru 09/10 Was 214.136)
October 2010 CPI-W: 214.623 (+ 0.15%)
November 2010 CPI-W: 214.750 (+ 0.06%)
December 2010 CPI-W: 215.262 (+ 0.24%)
January 2011 CPI-W: 216.400 (+ 0.53%)
February 2011 CPI-W: 217.535 (+ 0.52%)
The bottom gray line crossing the chart horizontally at 215.495 reflects the baseline CPI-W which has to be exceeded by the average for July through September, 2011, for there to be any COLA at all in 2012.
The top gray line shows the average needed for July through September 2011 for a 1% COLA, 217.650. We’re almost there, in February. An increase of about 0.05% in the CPI-W will put us over the 1% line. This seems more than likely as food, energy, and commodity prices all increase, with no end in sight. Then we can hope for an average CPI-W of 219.800, which is what we would need for 2% COLA. This would take an increase of about 1.0% in the CPI-W from where we are now to achieve. Remember, though, it’s where we are in July through September that matters.
The April report from the Bureau of Labor Statistics, showing the March 2011 CPI-W, will be released April 15th. Check back.
I thought it would be interesting to take a look at what happened in the summer of 2008, when the price of oil rapidly inflated, which inflated gasoline and diesel fuel, which inflated nearly everything else. The following graph clearly shows this, as prices hit their highest point In July, 2008. Soon after that, in early September, 2008, with the demise of Lehman Brothers, the stock market collapse began, as did the great recession of 2008-2009. Prices fell like a stone, and not until December, 2008 (according to the Bureau of Labor Statistics), did they begin their slow (again according to the Bureau of Labor Statistics) climb which has continued to this day. (Note: The small, horizontal gray line at 215.495 represents the 2008 baseline amount. We just got back to this level in January, 2011.)
I bring this up just to show that a spike in inflation may be quite transitory, according to the Bureau of Labor Statistics, and that whatever they choose to report may have only a passing resemblance to the actual costs we pay. I know that my costs over the last 18 to 21 months have steadily increased by at least 10%. My grocery costs have increased more than this.
Repeated verbatim from last month’s report.
I do not trust Obama’s Department of Labor to figure the CPI-W honestly. For one thing, the numbers the Bureau of Labor Statistics are not “seasonally adjusted.” Once they are, they will probably be lower. We may feel the inflation, but the “official” numbers can easily be manipulated so that Social Security beneficiaries (and others whose COLAs are based on the increase in the CPI-W) can go one more year with no COLA. All in the name of deficit reduction. A 1% COLA would cost somewhere between $6 billion and $7 billion in 2012, and each year thereafter. A 2% COLA would cost twice as much.
This information is also repeated verbatim from preceding reports.
If we get a Social Security COLA in 2012, Medicare Part B premiums will increase by a significant amount.
Part B premiums have been kept at the 2009 amount, $96.40, in 2010 and 2011, for about 75% of beneficiaries who were eligible for Part B prior to January 2010. According to law, the Social Security check amount cannot be decreased, so beneficiaries entitled before January 2010 could not have their Medicare Part B premiums increased. The Trustees project that the 2012 Part B premium amount will be $111.40, based on the assumption that there will be a COLA in 2012. This is an increase of $15.00.
The average Social Security beneficiary receives $1170.00 per month. Let’s say that we do get a 1% COLA in January, 2012. That would mean that the COLA to a beneficiary receiving the average amount would be an increase of $11.00. This is less than the projected increase in the Medicare Part B premium, so the COLA for a beneficiary receiving the average amount would be entirely absorbed by the Part B increase, with $4.00 left over to be applied to the 2013 COLA (if one is payable) along with the 2013 Part B premium increase.
If the COLA is 2%, the increase for an average beneficiary would be $23.00. After his Part B premium increase was deducted, he would see a net increase of $8.00.