The 2019 cost of living adjustment (COLA) for Social Security recipients and federal retirees will be finalized in mid-October.
The months used in calculating any increase payable in 2019 are July, August, and September. The August data has just been reported so one more month of data is necessary to calculate the next COLA .
Calculating the COLA Increase
The method used to calculate the COLA for the coming year is confusing.
The Bureau of Labor Statistics (BLS) calculates the rate of inflation. The CPI-W is the index that is used to calculate the COLA. The COLA calculation uses the average CPI-W for the three months in the third quarter of the year (July, August, September). The quarterly data is compared to the average for the highest previous average of third quarter months.
To make it more confusing, the CPI-W is not the headline CPI-U that is frequently cited in news articles. Also, for the COLA calculation, the figure is not seasonally adjusted.
2017 was the highest third-quarter average. For the 2019 COLA, the third quarter of this year is compared to the third quarter of 2017.
To make it a little more confusing than it already is, the COLA actually goes into effect in December. Those who benefit from the COLA will see the increase in their January payment.
Estimating the 2019 COLA
The CPI-W was up 2.9% year-over-year in August. It is still early as the data for September will not be available until mid-October. My estimate (best guess?) is that the 2019 COLA will be just under 3% for the coming year and could hit the 3% figure. This will be the largest annual increase since 2012 when the increase was 3.6%.
How would a COLA of about 2.9% compare to past years? Here is a quick summary: