One of the most anticipated Social Security-related events of the year is the announcement of the cost-of-living adjustment, or COLA. While there are still a good two and a half months to go before definitively knowing what magnitude of raise to expect, signs are pointing to beneficiaries receiving their highest COLA since 2012.
The inflationary tether Social Security uses is the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W. The average reading of the CPI-W during the third quarter of the previous year (July-September) acts as the baseline number, while the average reading during the third quarter of the current year is the comparison. If the cost of goods and services measured by the CPI-W has risen on a year-over-year basis, the percentage increase, rounding to the nearest 0.1%, is passed along to beneficiaries.
What should have existing beneficiaries somewhat excited about the upcoming COLA announcement in October is that the CPI-W has been steadily climbing in recent months. After logging a 3% unadjusted change over the trailing-12-month period as of May, according to the Bureau of Labor Statistics (BLS), the CPI-W jumped to a 3.1% unadjusted increase on a year-over-year basis as of June.
Long story short, inflation has been trending up all year thanks to higher crude prices and rental inflation. That bodes well for a continuation of this pattern in July, August, and September, which are the three months that actually determine Social Security’s COLA in the upcoming year. Assuming we have a moderate hurricane season and face modest refining disruption, it is possible the COLA could come in at either 3.2% or 3.3% in 2019. That would represent a seven-year high.
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