August inflation and CPI report: how high will the 2023 Social Security COLA be?
With the Bureau of Labor Statistics tracking an increase in the Consumer Price Index, the 2023 COLA for Social Security could be historic in size.
Next month the Social Security Administration (SSA) will announce the 2023 COLA that will be applied to benefits starting in January.
On Tuesday, the Bureau of Labor Statistics reported that Consumer Price Index for All Urban Consumers (CPI- U) increased slightly by 0.1 percent in August after holding steady in July. Combined, the last two months of price movement have landed on a 6.3 percent increase in average prices in August compared to last year.
How is the COLA calculated?
The SSA uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which saw a slight decrease in overall prices, unlike the more commonly referenced CPI-U. The SSA sees this indicator as more useful in understanding the financial situation of seniors across the country. In recent years some leaders on Capitol Hill have proposed creating a CPI specific for seniors that would more accurately reflect and track price functions and the impact on the purchasing power of the country’s oldest residents.
How much was the 2022 COLA?
Last year the SSA calculated a COLA of 5.9 percent and, in all likelihood, this year’s will be higher.
Since last October, the CPI-W has shot up from 271.552 to 290.973. Based on these increases, if the COLA were calculated using the average of July and August, an 8.1 percent COLA would be offered. Next month, when the September price data has been collated, the SSA will make its final decision on the 2023 COLA public.
Historic cuts into the purchasing power of seniors
The issue with using a three-month screenshot to determine the COLA is that it may not represent the financial stress households have been under throughout this inflation crisis. This is exemplified by the fact that the COLA could decrease from what would be offered based on last month’s data. Seniors, many of whom receive their entire income from their Social Security, have struggled to keep up with the rapid price increases. The Senior Citizens League (SCL) reports that many on social security are skipping meals and rationing their medication because they cannot afford groceries or prescription drugs.
Food prices are up more than eleven percent compared to last year, with medical services up 6.1 percent - both figures exceeding the 5.9 percent COLA offered in 2022.
In May, the Senior Citizens League reported on a long-term study they have been conducting that found that “high inflation has caused Social Security benefits to losing 40 percent of their buying power since the year 2000.”
“That’s the deepest loss in buying power since the beginning of this study by The Senior Citizens League in 2010,” says Mary Johnson, a Social Security policy analyst for The Senior Citizens League who conducted the research.