The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased by 0.05 percent in August. That is good news for federal retirees and other Social Security recipients hoping for a cost of living adjustment (COLA) in their checks in January.
The CPI-W is the applicable inflation index for measuring increases in the prices of consumer goods.
A small increase for retirees will be despite healthcare inflation going up rapidly. The latest CPI release shows healthcare services inflation up 5.1%, and medical commodities, mainly drugs, up 4.5%. These increases are more likely to impact retirees than younger people.
The actual increase for 2017 will be calculated after the Bureau of Labor Statistics releases the figures on October 18, 2016. It is likely to be a very small increase in any event.
How the COLA Works
If a COLA increase is 3 percent or more, retirees under the Federal Employees Retirement System (FERS) will receive 1 percentage point less than the full increase.
With an increase between 2 percent and 3 percent, FERS retirees will receive a 2 percent bump.
But, in reality, with an increase of less than 2 percent, FERS retirees receive the same amount as those under the Civil Service Retirement System (CSRS) will receive.
Doing the COLA Math
There will be an adjustment in 2017 if consumer prices in July through September of 2016 are higher than for the same time period in 2014. It is usually a year-over-year comparison. Since no COLA was paid in 2016, the comparison is to July-September 2014.
For those curious about how the math for determining the January adjustment, here it is. The CPI-W figure for August 2016 was 234.909. That is 0.28 percent higher than the average CPI-W for the third quarter of 2014.
Comparing the COLA to 2017 Pay Raise
Another question often posed is how the 2017 pay raise for federal employees will impact any COLA for 2017.
The federal employee pay raise, likely to be a 1% increase with another 0.6% increase for locality pay, has no direct impact on any increase for federal retirees. In 2016, for example, federal employees received an average pay raise of about 1.3%. There was no COLA increase in 2016.
The system for determining the increase for retirees is an automatic calculation. The system for determining the pay raise for federal employees is largely political. The president’s recommendation has been the determining factor in the past several years, and probably will be the determining factor in 2017, as Congress has not exercised its authority to alter the amount of the recommended raise.