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,) so there were no COLA’s in 2010 or 2011. This year it appears that the CPI-W for July through September will exceed the baseline, if current trends continue, so it is looking very good for a Social Security COLA in 2012.
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.
The Current CPI-W
According to the Bureau of Labor Statistics (BLS), The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 3.6 percent over the last 12 months to an index level of 221.743 (1982-84=100). For the month, the index rose 0.8 percent prior to seasonal adjustment.
The CPI-W increased again in April 2011, about 0.8% over March 2011. This was a lower increase than in March 2011, which was about 1.1% over February 2011. According to the BLS, “The energy index posted another increase in April as the gasoline index continued to rise, the latter accounting for almost half of the seasonally adjusted all items increase. The household energy index also rose, with all of its major components posting increases. The food index increased as well in April, though the 0.5 percent rise in the food at home index was the smallest increase this year. Within the food at home component, the indexes for meats, poultry, fish, and eggs, for dairy and related products, and for nonalcoholic beverages all posted notable increases, though the fresh vegetables index did decline following recent advances.
A little more detail. According to the BLS, regarding food costs, “The food index rose 0.4 percent in April after rising 0.8 percent in March. The food at home index, up 1.1 percent in March, rose 0.5 percent in April. The deceleration was mainly due to the fresh vegetables index, which turned down in April, falling 2.7 percent after posting large increases in each of the previous two months.”
The BLS’s remarks regarding energy costs, “The energy index rose 2.2 percent in April. This is the tenth increase in a row and follows advances of 3.5 percent in March and 3.4 percent in February. The gasoline index rose 3.3 percent in April after a 5.6 percent increase in March. (Before seasonal adjustment, gasoline prices rose 7.5 percent in April.) (My Note: This is how they fudge it.) The index for household energy also increased in April, rising 0.7 percent. The fuel oil index rose 3.2 percent, continuing a strong upward trend, while the index for electricity increased 0.2 percent. The index for natural gas, which declined in March, rose 1.9 percent in April.
You can see the entire report at Consumer Price Index Summary. The CPI-W figures are in Table 4, a link to which is at the bottom of the page.
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%)
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%)
March 2011 CPI-W: 220.024 (+1.14%)
April 2011 CPI-W: 221.743 (+0.78%)
There are 4 gray lines on the chart. The lowest one, at 215.435, is the baseline CPI-W, which has to be exceeded in July through September for there to be any COLA in 2012. The other gray lines, at 217.650, 219.800, and 222.000, are the levels for COLAs of 1%, 2% and 3%, respectively. As of April, we have nearly to the 3% line. Even if inflation slows somewhat in May, which I expect to happen, we should get above the 3% line in May.
Indications are that the cost of oil will continue to decrease somewhat, which will decrease the cost of gasoline and diesel fuel. These price decreases will work their way into other prices and we could even go into a period of deflation, like we saw in the second half of 2008, though I think this is not likely. Please see the second graph in my 2012 SSA COLA Watch (March Report) for an example of this. The price of oil went from about $135.00 per barrel to about $40.00 between June and December 2008, and its effect on the CPI-W was immediate and dramatic. I don’t think we’ll see a similar collapse in oil prices this time. The dollar is much weaker overall than it was in 2008, for one thing. Also there is a glut of oil on the market now, which in itself tends to decrease prices, so I wouldn’t be surprised to see OPEC cut production to firm prices if they go much lower.
All of this is speculative, however. Remember, it’s where the CPI-W is in July through September that actually determines the following year’s COLA.
I want to reassure everyone that the COLA isn’t determined by Presidential whim or Congressional skullduggery. The method by which the COLA is determined is specified in the Social Security Act (the law which governs the various Social Security programs), and the implementing regulations. These have been in effect since 1975.
§215(i)(1) of the Social Security Act provides the legal basis for COLAs. Subparagraph (D) says, in part, “…the term “CPI increase percentage” … in any calendar year, means the percentage (rounded to the nearest one-tenth of 1 percent) by which the Consumer Price Index for that quarter (as prepared by the Department of Labor) exceeds such index for the most recent prior calendar quarter which was a base quarter under subparagraph (A)(ii) or, if later, the most recent cost-of-living computation quarter under subparagraph (B);…”, but doesn’t specify which particular index — the BLS prepares several indices. This is basically what I say in the first paragraph, except it was written by lawyers.
However, the implementing regulations (20 CFR (Code of Federal Regulations) §404.272) provide that the COLA will be based on “(t)he revised Consumer Price Index (CPI) for urban wage earners and clerical workers as published by the Department of Labor” (in other words, the CPI-W) for the foreseeable future. There is a provision that would base the COLA on a different metric, but that only will take effect when the combined OASI and DI trust funds are virtually exhausted, in around 2037 if the law is not changed.
But. given the putative “crisis” situation in Washington, I cannot say for sure whether any COLA will survive in the political battles to come. Each 1% of COLA costs about $7 billion each year forever. I do not trust President Obama and Congress not to discard COLAs altogether as a deficit reduction measure (which isn’t appropriate, since Social Security benefits do not add to the deficit.) However, I do not think this is likely, given the whupping the Republicans have taken for the Paul Ryan budget, which eliminates Medicare as we know it for everyone age 54 and younger. They have very quietly abandoned this position a few days ago, under cover of all the Osama bin Ladin news.
This does not mean, for one second, that we, the people of this country, should cease our vigilance and our pressure on our elected representatives, to make sure they know how unpopular the Paul Ryan budget, and the putrescent ideology which spawned it, are to us. The Congress and the President must never forget, for one second, that there is a social contract between the people and their government that Social Security and Medicare are both entitlements, paid for by workers (and their employers) under the express promise that their benefits would be there when they need them. Any other option breaks this social contract and is unacceptable to us. A President, a Senator, or a Representative who forgets this should be voted out of office at the first opportunity for attempting to swindle the people.
The June report from the Bureau of Labor Statistics, showing the May 2011 CPI-W, will be released Wednesday, June 15. Please check back here the next day.
This information is also repeated verbatim from preceding reports, and is repeated here as a reminder.
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. At 3%, the increase would be $35.00 for an average beneficiary. After deduction of the higher Part B premium, this would give the average beneficiary a net increase of $20.00.