High inflation points to bigger Social Security COLA in 2023

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Social Security beneficiaries could see another record cost-of-living adjustment in 2023, based on the latest government data showing persistent high inflation.

But that increase may not be enough to stop the loss in buying power recipients have experienced over the years, according to a new analysis from The Senior Citizens League, a non-partisan advocacy group.

The popular inflation measure, the Consumer Price Index for All Urban Consumers, known as the CPI-U, was up 8.3% over the past 12 months, staying near 40-year highs, according to April data released on Wednesday.

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Meanwhile, the index the Social Security Administration uses to calculate cost-of-living adjustments each year, the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, has increased by 8.9% over the last 12 months.

That points to a cost-of-living adjustment of 8.6% for 2023, based on the April data, according to The Senior Citizens League.

That is down from the group’s 8.9% COLA estimate based on March CPI data. At that time, the CPI-W had increased by 9.4% over the past year.

Social Security beneficiaries saw a 5.9% bump to their monthly checks in 2022, the highest increase in about 40 years.

To be sure, a bigger cost-of-living adjustment for 2023 is not guaranteed.

To calculate the COLA each year, the Social Security Administration compares CPI-W data from the third quarter to the third quarter of the prior year.

If inflation subsides, there is the possibility of a lower adjustment, or even no increase, for next year or in 2024.

Much of that will depend on how fast the Federal Reserve’s efforts to tamp down inflation by raising interest rates takes effect, according to Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League.

“I think the action at the Fed is going to slow things down,” Johnson said.

One possibility is inflation may become deflation, where prices start going down very rapidly, she said.

However, even another record high cost-of-living adjustment may not be enough to stop the loss of buying power people who rely on those benefits have already seen over the years.

Social Security benefits have lost 40% of their buying power since the year 2000, according to a new analysis by The Senior Citizens League.

“People who have been retired the longest have really been impacted the most, because they’ve had a cumulative effect where their COLA’t been keeping up,” Johnson said.

The sharpest drop in purchasing power ever recorded by the group occurred between March of last year and this March, when it dropped 10 percentage points.

Fastest-growing costs for older Americans from March 2021 to March 2022

Item Cost in March 2021 Cost in March 2022 % Increase
1. Home heating oil $2.86 $5.13 79%
2. Gasoline (gallon) $2.86 $4.33 51%
3. Used vehicles (numeric data) 153,873 208,216 35%
4. Propane gas (gallon) $2.30 $2.98 30%
5. Eggs (dozen) $1.63 $2.05 26%
6. Bacon (lb.) $5.85 $7.20 23%
7. Oranges (lb.) $1.27 $1.48 16.5%
8. Coffee (lb.) $4.67 $5.41 16%
9. Medicare Part B Premium $148.50 $170.10 14.5%
10. Ground chuck (lb.) $4.31 $4.87 13%

Source: Senior Citizens League, based on Bureau of Labor Statistics data through March.

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