Background: Social Security determines whether there will be a COLA for the succeeding year and its amount in October each year by comparing the average CPI-W (Consumer Piece Index – Urban Wage Earners And Clerical Employees) 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 significantly exceed the baseline, so there will be an SSA COLA in 2012 and, if current trends continue, it is looking very good for a Social Security COLA in 2012 of at least 3%, and maybe more.
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 red line on the graph below, and is the threshhold we must exceed to receive any sort of COLA in 2012..
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 4.1 percent over the last 12 months to an index level of 222.924 (1982-84=100).
The CPI-W increased again in May 2011, about 0.5% over April 2011. This was a lower increase than in April 2011, which was about 0.8% over March 2011. According to the BLS,
“The food index rose 0.4 percent in May, the same increase as in April. The food at home index increased 0.5 percent and has risen 3.7 percent since December. Among major grocery store food groups, the index for meats, poultry, fish, and eggs rose 1.5 percent and the cereals and bakery products index increased 1.0 percent. The dairy and related products index and the index for other food at home posted smaller increases, while the index for nonalcoholic beverages was unchanged. The only group to decline was the fruits and vegetables index, which declined 1.3 percent as a sharp decline in the index for tomatoes caused the fresh vegetables index to fall for the second straight month after sharp increases early in the year. The food at home index has risen 4.4 percent over the last 12 months with all major grocery store food groups posting increases.””
The BLS’s remarks regarding energy costs,
“The energy index declined 1.0 percent in May ending a series of ten consecutive advances. After a series of several sharp increases, the gasoline index declined 2.0 percent in May. (Before seasonal adjustment, gasoline prices rose 3.6 percent in May.) Despite the May decline, the gasoline index has increased 23.7 percent over the past six months. The index for household energy increased in May, rising 0.5 percent after a 0.7 percent increase in April. The index for electricity rose 0.8 percent, more than offsetting a 0.8 percent decline in the fuel oil index and a 0.3 percent decrease in the index for natural gas. The household energy index has risen 2.9 percent over the last 12 months, with the fuel oil index up 36.0 percent and the electricity index up 1.8 percent but the index for natural gas down 1.2 percent.”
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%)
May 2011 CPI-W: 222.924 (+1.01%)
There are 4 colored horizontal lines on the graph. 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 lines, at 217.589, 219.744, and 221.898, are the levels for COLAs of 1%, 2% and 3%, respectively. As of May, the CPI-W supports a COLA of about 3.48%. Even if inflation slows somewhat in June, which I expect to happen, we should get a bit closer to 4%. The CPI would have to reach 224.052 to support a 4% COLA, which is still possible.
Indications are that the cost of oil will continue to decrease, which will decrease the cost of gasoline and diesel fuel. These price decreases will work their way into other prices and it is conceivable that we could even go into a period of deflation, like we saw in the second half of 2008, though I think this is unlikely. The price of oil collapsed from about $145.00 per barrel in July 2008 to about $30.00 in December 2008, and its effect on the CPI-W was immediate and dramatic. (Please see the second graph in my 2012 SSA COLA Watch (March Report) to show this.) I don’t think we’ll see a similar collapse in oil prices this time. They seem to have stabilized at about $100 per barrel. The dollar is much weaker overall than it was in 2008, for one thing.
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.
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 July report from the Bureau of Labor Statistics, showing the June 2011 CPI-W, will be released Friday, July 15. Please check back here the next day.
This information is also repeated essentially 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 3% COLA in January, 2012. That would mean that the COLA to a beneficiary receiving the average amount would be an increase of $35.00. That beneficiary’s Part B Premium increase of $15.00 would be deducted from this, leaving a net increase of $20.00 per month.