Social Security COLA Watch: August 2012

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The CPI-W for July 2012 was released this morning by the Bureau of Labor Statistics, and the index continued its decline from last month. The CPI-W index fell from 226.036 to 225.568, which is only 1% higher than the third quarter 2011 average (the baseline for COLA calculations). Once again, energy prices appear to be the culprit, as food prices and other prices increased slightly or were unchanged.

The July report is the first one that factors into the 2012 COLA calculation (recall that the COLA is based on the 3rd quarter only). If the CPI-W doesn’t change over the next two months, Social Security beneficiaries will receive a COLA of approximately 1%. If the downward trend in CPI-W continues, the COLA will be smaller. However, I would expect the CPI-W to actually increase, rather than decrease over the next few months. First, one very transparent element of energy prices – gasoline prices – have been increasing rapidly since the end of July. Gasoline prices have been a big contributor to the decline in CPI-W in recent months, so a reverse in that trend should contribute to an increase in CPI-W. Second, the impact of the drought in the midwestern US has been putting pressure on food prices.

Increases in food and energy prices are certainly not beneficial to US consumers. However, if they occur during the third quarter of the year, they may result in a higher COLA for SS recipients. The analysis in this post is far from conclusive, but the beauty of a blog is the ability to speculate a bit (our custom reports are comprised of much more careful analysis). The August CPI report will be released on September 14, so check back then for an updated analysis.

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