Grumbling about sky-high prices continues to be very much part of everyday conversation. So retirees and others receiving Social Security benefits cannot be blamed for remaining hyper-focused on the next cost-of-living adjustment that will take place in early 2025.
They’re glued to inflation reports once again.
Right now, it’s possible that the inflation adjustment for Social Security benefits could hit 2.6% in 2025, based on a very early estimate that reflects the latest inflation data for March, according to The Senior Citizens League, a nonpartisan advocacy group.
At 2.6%, we’d be looking at a fairly average cost-of-living adjustment.
During three years, Social Security beneficiaries saw their Social Security benefits remain the same when there was no adjustment for inflation during 2010, 2011 and 2016.
A 2.6% increase would amount to roughly $45 extra a month for many Social Security recipients on average, according to Shannon Benton, a director who oversees estimates of the Social Security cost-of-living adjustment for The Senior Citizens League.
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If the current estimate is on target, the estimated inflation-driven boost to benefits in 2025 would be smaller than what those receiving Social Security saw this year. The COLA boost for Social Security benefits was 3.2% for 2024.
In 2023, retirees and others saw an 8.7% COLA bump for Social Security benefits, as well as Supplemental Security Income benefits. That was the biggest inflation adjustment since 1981 when the COLA hike was 11.2%.
In 2022, the cost-of-living adjustment for Social Security benefits was a solid 5.9%.
The annual inflation adjustment for Social Security benefits is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers or the CPI-W. The index is determined by the Labor Department’s Bureau of Labor Statistics.
The exact formula used to calculate the inflation adjustment for Social Security benefits is based on monthly changes for July, August and September for the Consumer Price Index for Urban Wage Earners and Clerical Workers.
After 1983, the Social Security Administration notes, that cost-of-living adjustments have been COLAs based on increases in the CPI-W from the third quarter of the previous year to the third quarter of the current year.
During the first three months of 2024, inflation has been running much hotter than many had projected.
The consumer price index rose 3.5% year over year in March, according to data released April 10 by the U.S. Bureau of Labor Statistics. That’s up from the 3.2% increase year over year for February. February was viewed as a hot month when it came to inflation; and now the same is true for March.
The Consumer Price Index for Urban Wage Earners and Clerical Workers went up 3.5% year over year in March.
As spring takes off, it’s hard to judge how if inflation could sizzle or if it might cool down in a few months.
Yet some economists estimate that inflation might slow down later in 2024, which could contribute to a smaller cost-of-living adjustment for those receiving Social Security benefits in 2025.
PNC Bank expects the price index to slow to a year-over-year pace of 3% by the third quarter, which would be down from the March reading of 3.5%, according to PNC senior economist Kurt Rankin.
Bill Adams, chief economist at Comerica Bank, said he would estimate that the CPI-W will likely be between 2.5% and 2.75% in year over year terms in the third quarter of 2024.
Currently, though, inflation is running at higher levels than many economists and Wall Street traders had expected just a few months ago, Ameriprise Chief Market Strategist Anthony Saglimbene said in a statement.
“On the consumer side, gasoline prices, shelter costs, apparel, and motor vehicle insurance prices kept inflation elevated last month,” Saglimbene wrote on April 15.
What’s called “Supercore” inflation — which takes out food, energy, and housing — increased 4.8% year over year in March, which was the highest level in eleven months, he said.
He noted that the “last mile or so of consumer inflation moving back to the Federal Reserve’s 2% target is proving increasingly difficult to attain, at least early in the year.”
We’re hearing more buzzwords from economists and others, like “sticky inflation,” “stubborn inflation,” and yes, “the last mile on inflation.”
The consumer price index for April is scheduled to be released at 8:30 a.m. May 15 by the Bureau of Labor Statistics.
We’ll see in a few months how it all shakes out when it comes to COLA increases for those receiving Social Security benefits.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.