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 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 purple line on the graph below, and is the threshold we must exceed to receive any sort of COLA in 2012..
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 0.1% in July 2011 to an index level of 222.686 (1982-84=100).
Over the last 12 months, the all items index increased 4.1 percent before seasonal adjustment. The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose.
The index for all items less food and energy increased as well, though the 0.15 percent increase was slightly smaller than the two previous months. The shelter index accelerated in July, and the apparel index again increased sharply. In contrast, the index for new vehicles was unchanged after a long string of increases. The index for household furnishings and operations was flat in July as well, and the recreation index declined slightly.
The 12 month change in the all items index remained at 4.1 percent for the third month in a row. The change in the index for all items less food and energy continued its upward trend, rising to 1.8 percent in July, with the shelter and apparel indexes contributing notably to the acceleration. The energy index has risen 20.0 percent over the past year.
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
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%)
July 2011 CPI-W: 222.686 (+0.07%)
There are 5 colored horizontal lines on the graph. The lowest one, at 215.495, 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, 221.960, and 224.155 are the CPI-W amounts needed for COLAs of 1%, 2%, 3%, and 4% respectively. As of July, the CPI-W supports a COLA of about 3.34%. I expect that the CPI-W will continue its increase in August, but I do not expect the rate to increase much. We are slipping back into recession, and this tends to be deflationary. I do think that the COLA will exceed 3%, but by how much is yet to be determined.
Remember, this month and the next two are the three critical months. Everything up through June was predictive but not material. Now it’s crunch time. The average CPI-W amounts for July through September actually determine the following year’s COLA.
The August report from the Bureau of Labor Statistics, showing the August 2011 CPI-W, is scheduled to be released Thursday, September 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.