Largest COLA Increase Since 2012?

The COLA payments starting in January 2019 will probably include the largest increase since 2012.

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:

2018 2%
2017 0.3%
2016 None
2015 1.7%
2014 1.5%
2013 1.7%
2012 3.6%
2011 None
2010 None

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47