The government has just updated most subsidies with the aim of increasing social protection in all states. One of them is linked to inflation, and has been the most awaited during the first months of this year. In this sense, they have published the COLA increase for 2024, with which they intend to take a step forward.
COLA increase for 2024: the change that has the U.S. on edge
The Cost of Living Adjustment (COLA) is an annual increase in Social Security benefits intended to help recipients keep up with inflation. COLA helps ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by rising prices.
The COLA increase is calculated based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures monthly changes in the prices paid for goods and services like food, housing, apparel, transportation, medical care, recreation, and education.
If there is an increase year-over-year in the third quarter average CPI-W, a COLA raise takes effect in January of the next year. The purpose of COLA is to protect the real value of Social Security income. As the costs of various expenses rise, COLA aims to help beneficiaries afford the same standard of living.
The data are not definitive, but this is the prediction of COLA increase for 2024
The COLA increase for 2024 is highly anticipated given the historic high inflation in 2022. While it’s too early to definitively predict the 2024 COLA, economists are already making projections based on inflation data so far.
The COLA is determined based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the prior year to the third quarter of the current year. As of July 2022, the 12-month increase in CPI-W was 8.7%. If inflation remains high, the COLA for 2024 could be between 8-10%.
However, inflation is expected to cool somewhat in 2023. Factors like improving supply chains and the Fed’s interest rate hikes should bring prices down. If inflation falls to 6% by mid-2023, the 2024 COLA may be around 6-7%.
While lower than 2022’s historic 5.9% increase, a COLA of 6-7% would still be higher than average. For context, the 2023 COLA was 8.7%, while the average annual increase historically is just 2-3%. So even if inflation moderates, the 2024 COLA will likely be robust compared to pre-pandemic levels.
Inflation is playing a dirty trick: this is how COLA has been affected these months
Inflation remained persistently high throughout 2022. The CPI for July 2022 showed an 8.5% increase over the last 12 months. This is down slightly from the 9.1% increase in June, but still extremely elevated compared to historical levels.
If inflation continues at an elevated rate, it will result in a substantial COLA increase for 2024. The 2023 COLA was set at 8.7%, the highest in over 40 years, based on high inflation data leading up to the increase calculation.
Forecasters predict inflation may have peaked in mid-2022, but will remain well above the Federal Reserve’s 2% target through 2023. This means the COLA calculation period for 2024 could still see inflation around 6-7%.
As you can imagine, the inflation caused by the supply crisis has played a key role. However, for this year, forecasts that the COLA would eventually skyrocket did not materialize. It remains to be seen, however, how this will materialize in the specific adjustments for the energy sector, which has been the hardest hit so far.
As you have seen, the COLA increase for 2024 is intended to improve the socioeconomic level of all Americans, as Biden himself announced in one of his last statements. However, the opinion still resonates that they are insufficient, although we remain impartial and, of course, inform you.