Background: Under current law (*) 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.
(*) There is a possibility, although I think it is unlikely, that the Congressional budget deficit negotiators and President Obama may change the method by which COLAs are calculated. There are no recent details about this.
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. With this COLA Watch we come to the end of the predictive period. Next month’s report will show July CPI data, and will be used to determine the COLA.
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) decreased 0.2% in June 2011 to an index level of 222.522 (1982-84=100).
The Energy Index: The gasoline index declined sharply in June, falling 6.8 percent. While this decrease was the major factor in the seasonally adjusted
decline in the all items index, the index for household energy declined as well.
The Food Index: The food index increased, although the 0.2 percent rise was the smallest of the year. The index for food at home increased 0.1 percent, with major grocery store food groups mixed. The index for fruits and vegetables decreased 1.3%, the index for meats, poultry, fish, and eggs remained unchanged, while the other major grocery store food group indexes all increased, none rose more than 0.6 percent.
In contrast, the index for all items less food and energy (the “core” CPI) increased 0.3 percent for the second consecutive month. The indexes for shelter, apparel, new vehicles, used cars and trucks, and medical care all continued to rise in June.
Overall, the CPI-W has increased by 4.1% over the last 12 months from June 2010 through June 2011.
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%)
June 2011 CPI-W: 222.522 (-0.2%)
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 217.650, 219.805, and 221.960, are the CPI-W amounts needed for COLAs of 1%, 2% and 3%, respectively. As of June, the CPI-W supports a COLA of about 3.26%. I expect that the CPI-W will resume increasing in July. If it averages 224.115 for July 2011 through September 2011, this would support a COLA of 4%. This is 0.72% above where we were in June, so it is still possible
Crude oil has increased in price from about $93.00 a barrel three weeks ago to about $98.00 per barrel now. Gasoline has increased from about $3.58 per gallon ten days ago to $3.67 today. Gasoline prices are expected to continue rising throughout the summer at an average rate of 3 to 4 cents a gallon per week. If this prediction is accurate, then gasoline will be about $3.75 by the end of July. This, coupled with the continuing increase in the core inflation, should give us back the 0.2% we lost in June and perhaps more besides. I will keep track of the daily prices of gasoline and post periodic updates — perhaps weekly.
Remember, it’s where the CPI-W is in July through September that actually determines the following year’s COLA.
The August report from the Bureau of Labor Statistics, showing the July 2011 CPI-W, is scheduled to be released Thursday, July 18. 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.