Inflation was 2.9 percent in August, says the Bureau of Labor Statistics. September's number will determine 2019's Social Security COLA increase. (Photo: Shutterstock)
Social Security's beneficiaries can expect a bump in benefits in 2019, courtesy of a Cost of Living Adjustment, which will be formally announced October 11.
Social Security COLAs reflect inflation rates and are based on third quarter measurements of the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W.
Inflation in July was 3.2 percent, and 2.9 percent in August, according to the Bureau of Labor Statistics. September's number will determine if next year's COLA increase will exceed 3 percent, the highest increase since 2011, when Social Security checks increased 3.6 percent after two years of no COLA increases.
Actuaries at the Senior Citizens League, which advocates for retiree rights, have revised its COLA projection to 2.8 percent, down from an earlier projection of 3.3 percent.
In order to drop to 2.8 percent for the quarter, September would have to post a lack luster inflation rate of 2.3 percent, something Adam Kamins, an economist with Moody's Analytics, does not expect.
“The broader fundamentals point to higher inflation,” Kamins told BenefitsPRO. “It's hard to imagine a scenario where you would see a really sharp drop off in September's number—at least not anywhere near the extent implied in a 2.8 percent COLA.”
Hawkish monetary policy from the Federal Reserve—Moody's Analytics and others are predicting two more rate increases this year—will be the chief factor in keeping inflation in check, said Kamins.
But a litany of other factors suggests September won't see slowed inflation.
The highest level of wage growth in a decade was reported earlier in the month, with unemployment holding under 4 percent. The latest salvo of tariffs on Chinese imports—and China's response—augur for increases in the price of goods. And the Trump Administration is prepping new sanctions on Iran in November, which is expected to tighten global oil supplies. Some analysts are predicting the price of crude will hit $100 a barrel.
“Our expectation is inflation will continue on the path it's been on for the year,” said Kamins.
Another $500 for average retiree
About 60 million Americans receive monthly checks from the Social Security Administration, 43 million of whom are retirees. The average monthly check after last year's 2 percent COLA increase was $1,404, or $16,848 a year.
A 3 percent COLA increase would amount to a $42.12 increase in monthly checks, or an annual raise of $505.44.
The CPI-W is a subset of the Consumer Price Index for All Urban Consumers, or CPI-U. Both CPIs are based on the prices of food, clothing, shelter, fuel, transportation, medical services, drugs, and other goods and services that people buy for day-to-day living. The CPI-W represents about 29 percent of the total U.S. population.
The Senior Citizens League argues that the CPI-W index represents an inaccurate calculation of retirees' spending habits and true cost of living. The group advocates using the Consumer Price Index for the Elderly, or CPI-E, to calculate Social Security COLAs.
The BLS has been running an experimental CPI-E index. Between 1982 and 2011, the CPI-E rose at an average annual rate of 3.1 percent, compared to 2.9 percent for the CPI-W. Most of the difference was accounted for by escalating health care inflation and the fact the seniors consume more medical services. More recently, the CPI-E has tracked with the CPI-W as health care inflation has slowed.
Social Security checks account for 33 percent of all income for elderly Americans, according to the Social Security Administration. About half of married retirees derive half of their income from Social Security; 21 percent of married retirees and 44 percent of single retirees rely on Social Security for 90 percent of their income.
Read more at BenefitsPRO:
10 things to know about Social Security before retirement
IG report: SSA employees asleep at the wheel when advising widows
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
