2022 COLA May Be Special
The latest data has been released on the Consumer Price Index that measures the rate of inflation. Last month, FedSmith wrote: “Inflation is increasing more than expected. The May inflation rate was 5% over a 12-month period.”
5% was an unexpectedly high number for inflation, but the latest figures for the CPI-W index for June now show a 6.1% annual rate of inflation over the past 12 months. The CPI-W index is the index used in calculating the annual COLA increase for Social Security recipients and federal retirees. The COLA adjustment is reflected in money received in January 2022 payments.
In May, this index was up 0.9%. In the latest figure for June, the index was up 1.1%.
The inflation reports in April and May from the Bureau of Labor Statistics put Social Security recipients on notice that their COLA for 2022 might be something special. Yet many dismissed the hefty price increases as being purely temporary in nature.
While the mix of inflation projections is confusing, there is not any doubt that inflation is going up rapidly. We have left behind the low inflation figures of the past 10 years. Some retirees who are relying on pension payments and Social Security payments will be heartened to see their annual income go up.
On the other hand, the inflation increase in the January payments will not match the real rate of price increases. Soothing statements by officials that the rate increases are temporary sound good. The reality is that when inflation leads to an increase in prices, the increases tend to stay in place (or go up less) instead of dropping back down to former levels.
In other words, the standard of living for many retirees will actually go down next year when all is said and done. More money from a retirement pension and Social Security is always better than less.
The final COLA adjustment for 2022 will not be known until mid-October 2021. The COLA rate is an automatic calculation determined through a rather complex calculation. As noted below, a projection for 2022 COLA is 6.1% from the Senior Citizens League.
Confusing Inflation Figures
There are different inflation indices announced by the Bureau of Labor Statistics.
One headline this month will read along the lines of “CPI Increased 5.4% in June”. Another will read “Inflation Index for Used Cars Up 10.5%”.
The FedSmith headline on this article cites an inflation rate of 6.1%.
While all of the headlines are accurate, they are all are citing different data.
FedSmith cited the 6.1% inflation rate. The reason for this is because this is the number for the inflation figure that will impact the annual COLA amount when the next COLA is announced for January 2022. The Bureau of Labor Statistics (BLS) refers to this index as the CPI-W index. This acronym stands for the Consumer Price Index for Urban Wage Earners and Clerical Workers.
Projected COLA for 2022 Going Up Every Month
Last month, one projection for the annual COLA increase that will be reflected in January checks was 5.3%. One month before the 5.3% projection in May, the projected COLA for 2022 was projected to hit 4.7%. Back in April, the projected COLA for 2022 was 3%.
With the most recent inflation rate, the COLA for 2022 will likely be even higher than the 5.3% projection when it is announced in October. The Senior Citizens League now estimates the 2022 COLA will be 6.1% with payments starting in January 2022. This would be the highest COLA increase since the rapid inflation that started during the Carter administration. The COLA in 1981 was 11.2% and in 1982 it was down to 7.4%.
In October 2020, the final figures for the 2021 COLA were announced. Federal retirees received a 1.3 percent increase for Civil Service Retirement System (CSRS) annuities, Federal Employees Retirement System (FERS) annuities, and Social Security benefits in January 2021.
Looking Back at 30-Year COLAs
2022 will ultimately see the highest COLA increase since 2009 when the COLA went up 5.8%. It seems likely inflation will continue to move higher. It would take a lot more inflation pressure for the CPI-W to move high enough to match the 5.8% COLA that Social Security recipients and federal employees received in 2008. But, with the rapid increase in the inflation rate, the rate may go up more than in 2008. The Senior Citizens League’s latest estimate for the 2022 COLA is now up to 6.1%.
With the second-highest reading coming in at 4.1% from 2005, the 2022 COLA will likely move into the number two position when looking back over a 30-year period and perhaps the highest COLA increase in 40 years (since 1982).
- January 1991 — 5.4%
- January 1992 — 3.7%
- January 1993 — 3.0%
- January 1994 — 2.6%
- January 1995 — 2.8%
- January 1996 — 2.6%
- January 1997 — 2.9%
- January 1998 — 2.1%
- January 1999 — 1.3%
- January 2000 — 2.5%
- January 2001 — 3.5%
- January 2002 — 2.6%
- January 2003 — 1.4%
- January 2004 — 2.1%
- January 2005 — 2.7%
- January 2006 — 4.1%
- January 2007 — 3.3%
- January 2008 — 2.3%
- January 2009 — 5.8%
- January 2010 — 0.0%
- January 2011 — 0.0%
- January 2012 — 3.6%
- January 2013 — 1.7%
- January 2014 — 1.5%
- January 2015 — 1.7%
- January 2016 — 0.0%
- January 2017 — 0.3%
- January 2018 — 2.0%
- January 2019 — 2.8%
- January 2020 — 1.6%
- January 2021 — 1.3%