2012 COLA Watch (June Report – Updated Monthly)

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.

Medicare

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.

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15 Responses to 2012 COLA Watch (June Report – Updated Monthly)

  1. Lynn says:

    I find it interesting that Medicare insurance will “INCREASE” by over 15.5% ….wherein the premium for COLA might be 3 or less percent. All of our expenses as senior citizens have increased over the past to years….but the government conveniently bypasses some of the major items that increase to minimize COLA increases. Our portfoliios are worthless and the banks are willing to pay us less than a half percent of year on our savings and a whopping 1.2% on our CDs if we are willing to lock up our money for a decade. WHAT a joke our government is. IF the government is looking out for its people………who needs enemies with a friend like we have in our wonderful pat-themselves-on-the back government officials.

    • ssapotluck says:

      15.5% is correct. The last amount I saw for the 2012 Part B premium amount (contingent on there being a 2012 COLA) was $111.40. This is an increase of $15.00 over the current Part B amount of $96.40, which has been the same since January, 2009, but it represents three years of increases overall.

      I take some exception to your use of the word “government” as if it were an epithet. First, it isn’t “The Government, some awful thing imposed on us Americans by something outside our control. It is Our Government.” To quote from the Declaration of Independence,

      We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.

      I will agree that in its current form, our government is under severe attack from the right, which many on the left are doing nothing to stop. Government officials at all levels do their jobs as well as they can, under really adverse conditions, and believe in the programs they administer. Even as we speak, Social Security is encouraging employees to retire early, and losses of any kind are not being replaced, due to the government-wide hiring freeze. I think when you speak angrily about government officials, you are referring to politicians. I would only request that you say it that way.

    • Al says:

      Lynn, you made an excellent point. I wish someone in high level government could explain why oil from U.S. Strategic Reserves was released last month. Supposedly it was to reduce the price of gasoline? I always thought the Staegic Reserves were for a national emergency. It appears to have had an effect. There was a slight decrease in the CPI-W for the month of June 2011. I thought this would be a nice add-on to Lynn’s comment.

      • ssapotluck says:

        I had much the same reaction. However, any effect that this release had has come and gone. AAA estimates that gasoline will increase 3 to 4 cents per week all summer. If they’re right, that will put the CPI-W right back up to where it was and higher still, because core inflation continues to increase, as does food.

  2. Dominick Bombaro says:

    It looks like we may get a nice cola for 2012, this is real good news after not getting one for two yrs.

  3. Marcus says:

    Thank you for a great explanation of a very complicated issue. I look forward to your article in the middle of every month. When will people stop voting against their own interests? Keep it Up!!!!

    • ssapotluck says:

      People will continue to vote against their own interests as long as they believe that the “real” issues are, as some conservative strategist put it, “God, gays, and guns.” About a quarter of the population will never wise up. The rest are so disgusted that a lot of them refuse to vote, or to vote meaningfully.

  4. scared says:

    Getting a “nice” COLA 2012 will be eaten by Medicare increase, along with the rumblings that in order to pass a budget bil, disabled and elderly will be paying more in co-pays and medication – along with a COLA increase knocking many into the next “tier” of NOT being able to get any help from the state to help pay for the now needed supplemental insurance, food stamps, low income senior/disabled housing depending on the state you live in. The last “big” increase we got was enough to put me over the line by $12 a month. So another “nice” SS COLA increase will probably mean that the $30 “help” I get toward paying my supplemental insurance and beginning of the year prescription deductible (Part D really messed a lot of us up) will be gone. So on top of the 15% Medicare increase, there will be an increase in supplemental premiums and prescription deductible. I almost hope we don’t get a COLA in 2012. Not getting one will make the difference between many being able to get that little bit of extra help suddenly not being eligible, but still not only not getting enough to do more than exist on, but actually mean we have less per month, a good amount less.

    • ssapotluck says:

      I am not sure what you are referring to here. It sounds like Medicaid. I doubt that many SSDI recipients will get a big enough COLA that will cost them Section 8 housing or Food Stamps, although the amount of each may be affected. i would need more information from you to answer your question — what state programs are you referring to and which state do you live in. Contact me at my email address with specifics and I’ll research it for you.

  5. Danielle Comiskey says:

    You have your head in the sand or where else. I am 72 years old, paid into SS for 51 years and I get $727 a month. I am a type 1 diabetic, with a lot of expense every month, just for that. My car [ 1997 with over 200,000 miles] insurance costs one month of SS. How the HELL am I suppose to live on that? And now part B is going up. Give us a break, and stop raiding our savings account SS. If you didn’t pay in, You SHOULD NOT be able to take out. A private citizen who would operate this way would be put in jail for stealing. A FELONY [for large amount taken]

    • ssapotluck says:

      No one who is uninsured for Social Security is able to establish entitlement to Social Security benefits. You paid in for 51 years, and you are entitled. Perhaps you are confusing SSI with Social Security — many people do. SSI is a cash assistance program for aged, blind, or disabled people with limited income and resources who also meet other statutory requirements. Social Security is an entitlement program that one earns a right to by having the requisite number of years of covered employment. For retirement, it’s 40 quarters, or 10 years. For disability, it varies, depending on the age at which onset of disability occurs. Even though the Social Security Administration offices administer the SSI program, it isn’t part of Social Security. The Part B premium is going up $15.00 in January, if we have a COLA then. I am predicting a COLA of between 3% and 4%, which for you would mean a net increase in your check after Part B deduction from $9.00 (at 3%) to $17.00 (at 4%.) It isn’t a lot, and it in no way compensates for the inflation we have all endured for the last couple of years. Take up your complaint with your elected representatives in Congress and the Senate – now, when they are considering the FY 2012 budget and possible budget cuts (including changing how COLAs are calculated to a method less advantageous to beneficiaries) is when such a complaint may actually have some effect.

      By the way, this is a conservative meme — that people who didn’t pay into Social Security are somehow receiving Social Security benefits. It isn’t true. It is a conservative “big lie.” If you read my blog carefully, you will see that I am trying to explain what Social Security does, what is happening to it, what changes are coming. I am opposed to any change that disadvantages current beneficiaries. My wife and I live under the same sort of financial constraints that you do. I understand why you are angry and where your anger comes from, but I didn’t have anything to do with creating the laws that govern Social Security. I also will not as a rule respond to comments which are basically conservative memes. This blog takes a lot of work, and I don’t have the time or the inclination to argue with people who just parrot the crap that conservatives put out.

      I also appreciate it when comments are framed politely. I try not to characterize my posters, but as long as you brought it up, where is your head? Do you vote? Do you advocate for yourself? Do you call your Congressman or Senator or the White House? Do you write or email your Congressman, Senator, or the White House? Do you ever communicate with the steering committee of either political party? Have you ever demonstrated or participated in a vigil for something you think is right? Because, unless you have done these things, you’re not qualified to judge where anyone else’s head is.

  6. To ssapotluck.I want to compliment and thank you for all the imformation you provide.I find it very helpfull.
    keep up the good work.
    Bob K

  7. Justine says:

    This is a wonderful blog. I love your insight and levelheadedness. Thanks for being a voice of reason in the midst of all the squawking in the media.

    • revenuer says:

      Hi Justine,

      Thank you for another encouraging post.. We have a lot of wonderful visitors who help make the blog a pleasant place to visit and check things out. We are very appreciative of everyone who comes. We are learning a lot from all of you.

    • revenuer says:

      Hi Justine,

      Thank you for another encouraging post.. We have a lot of wonderful visitors who help make the blog a pleasant place to visit and check things out. We are very appreciative of everyone who comes. We are learning a lot from all of you.

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