Latest COLA Projection
Over the past 12 months, inflation has gone up 5.4% according to the Bureau of Labor Statistics. The latest projection on a possible 2022 COLA increase is 6.2%—up from a projection of 6.1% last month.
Last month, FedSmith cited a projection of a 2022 COLA being as high as 6.1% when payments to Social Security and federal retirees are paid starting in January 2022. With the continuing increase in inflation, the latest projection is up slightly in the last 30 days.
The last time an annual COLA was higher than the current projection was in July 1982 when there was a different COLA system. In that year, the COLA was 7.4%—likely the last time a COLA was as high as it is likely to be for 2022. For those with an eye on history, President Carter left office in 1981. The largest COLA was in 1980 when he was still in office. In that year, the COLA hit 14.3%.
The good news, perhaps, is that the rate of inflation was only up 0.5% after going up 0.9% in June. The CPI-W index is the index from the federal government on which the COLA for 2022 will be measured. As of July, the CPI-W index is up 6% over the last 12 months. This acronym (CPI-W) stands for the Consumer Price Index for Urban Wage Earners and Clerical Workers.
President Biden is assuring the public that inflation is now easing, although the Labor Department is reporting this week that prices rose in July 2021 compared to the prior month and also compared to July 2020.
Good and Bad News on Inflation
Those who will receive a large payment next year will be inclined to cheer at the possibility of a larger check. The reality is that inflation means prices are going up.
For example, the cost of gas has gone up 41.8% over the past 12 months. This pushes the COLA increase higher. President Biden, addressing the latest inflation figures, said his gas prices “are lower than they were early in this decade, but they’re still high enough to create a pinch on working families.”
Be assured that the 6.2% projection for a COLA increase is on the high side of what will be paid in January.
Final COLA Adjustment for 2022
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. The final annual COLA increase is determined by comparing the change in the CPI-W from year to year, based on the average of the months of July, August and September.