Low COLA? Blame it on Gasoline

By on October 19, 2016 in Retirement with 0 Comments

Image of gas pump filling station

Tuesday’s CPI report that will result in a low 2017 COLA for Social Security and federal retirees can be traced directly to gasoline prices that have dropped by about one-third between September 2014 and September 2016.

Calculating the increase for the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) by comparing the indices for July, August, and September 2016 averaged and compared with the 2014 third quarter average of 234.242, the COLA increase is 0.3%.

Using that same formula for Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) All Items Excluding Energy by comparing the indices for July, August, and September 2016 averaged and compared with the 2014 third quarter average of 232.947, the COLA increase would be 3.5%.

Energy prices have dropped 21.72% over the past two years with gasoline prices representing about 44% of the Energy index and the primary reason the Energy index has fallen by such steep amounts since 2014.

The irony is that older consumers, those most affected by the Social Security and federal retiree COLA, tend to drive less and use less gasoline than the general population so they receive less benefit from declining gas prices.

While gasoline prices have dropped by about 34% since September 2014, other costs of items and services more heavily used by seniors have risen sharply as measured by the CPI-W.

Medical care costs have gone up 7.77% in the past two years, reflecting a 9.92% jump in the price of hospital services and an 11.09% increase in prescription drug prices.

And prices for services used by seniors continue to rise rapidly. Physician services are up by 6.43% while costs for legal services have risen by 7.83%.

We already know premiums for health insurance under the Federal Employees Health Insurance Program (FEHB) are slated to rise 6.2% in 2017, while it is expected that Medicare Part B premiums will rise as much as 23% for CSRS retirees and other beneficiaries not protected by the held harmless clause.

National Active and Retired Federal Employees Association (NARFE) President Richard G. Thissen has already called for Congress to change how the COLA is calculated.

“Any COLA measurement must account for how seniors spend their money. This announcement also clearly shows a need to put to rest the idea that the federal government should save money on the backs of seniors by moving to the Chained CPI as the COLA determinant for federal benefits,” said Thissen in a written statement.

In the meantime, even the cost of vices continues to rise. Alcoholic beverage costs have gone up by a relatively meager 2.38% over the past two years, although tobacco and smoking products have risen by 7.46%, just below the rise in medical care.

By the way, don’t think you can avoid these increases by dying. Funeral expenses also are outpacing the overall rate of inflation and have risen 5.06% over the past 24 months.

© 2016 Michael Wald. All rights reserved. This article may not be reproduced without express written consent from Michael Wald.

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About the Author

Michael Wald is an independent economics analyst and writer based in the Atlanta area. He specializes in topics related to business, labor, and human resources. Prior to his retirement from the U.S. Department of Labor, he served as the agency’s Southeast Regional Director of Public Affairs and Southeast Regional Economist.

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