The Bureau of Labor Statistics (BLS) released the latest inflation figures today (August 10th). Today’s inflation figures are the first of the three months used to calculate the 2024 COLA.
Over the last 12 months, the all-items index increased by 3.2%. That does not sound bad. But, the picture is a little gloomier when looking at the overall impact of inflation on some of our biggest expenses.
Feeling Broke? Overall Impact of Inflation on Your Budget: 2022-2023
Chances are, everyone reading this feels like they have less money to spend—despite the 2023 Federal employee pay raise of 4.6% or the COLA increase of 8.7% (the largest COLA since 1981).
That feeling is not paranoia or a lack of sufficient math skills. The cost of having a place to live is still up 7.7% over the past 12 months. The cost of transportation is up 9% in the past year. The cost of eating at home is up 3.6%, and the cost of eating at a restaurant is up 7.1%.
According to BLS, for all of 2022, the cost of having a place to live was up 7.5%. Food was up 10.4%, and food at home was up 11.8%. The cost of fuel oil was up 41.5%, and the cost of a new car was up 5.9%.
Just over the past two years, your purchasing power has declined dramatically. Costs are up considerably more than expenses. And, as most have probably noticed, the annual COLA increase or the pay raise takes effect a year after expenses have already gone up dramatically from inflation.
Throw in 2021, and it does not get any better. Gas was up 49.6% in 2021. Inflation had not really kicked into high gear for many items. Housing was only up 4.1%, and all food expenses were up 6.3%.
So, if you are feeling like you have less money than you used to have—despite COLA increases, pay raises, a possible within-grade increase, or other income increases—the feeling that you have less money than you used to have reflects reality.
Inflation and the 2024 COLA
The rate of inflation is now going down but inflation is still going up and it is still impacting all Americans.
The consumer price index (CPI) was up 0.2% in July—the same as it was in June. Core CPI also increased by 0.2% in both months. This indicates inflation is not starting to go up again. Federal Reserve officials look more closely at core inflation because it predicts future inflation better than the overall inflation rate.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the index of most interest to federal retirees (or those who are close to retirement). This index increased 2.6% over the last 12 months to an index level of 299.899. For the month, the index increased by 0.2% prior to seasonal adjustment.
The CPI-W figure for July 2023 is 2.7% higher than the average CPI-W for the third quarter of 2022, which was 291.901 (1982-84 = 100). The annual COLA is determined by comparing the change in the CPI-W from year to year, based on the average of the third-quarter months of July, August, and September.
The Senior Citizens League projects that the annual COLA for 2024 could be 2.7%.
Federal Pay Raises During Periods of High Inflation
Inflation directly impacts the amount of COLA increases in a year and has at least an indirect impact on federal employee annual pay increases.
| Year | Pay Raise | Inflation | COLA |
| 1978 | 5.50% | 7.60% | 6.5% |
| 1979 | 7.00% | 11.30% | 9.9% |
| 1980 | 9.10% | 13.50% | 14.3% |
| 1981 | 4.8% | 10.32% | 11.2% |
| 2021 | 1% | 4.7% | 5.9% |
| 2022 | 2.7% | 8.5% | 8.7% |
| 2023 | 4.6% | 2.8% (projected) | 2.7% (projected) |
The 2023 COLA was the highest since 1981. The two presidents who were in office when inflation soared have been President Jimmy Carter and President Joseph Biden.
Comparing the annual COLA rates, pay raise rates, and annual inflation in two disparate administrations about four decades apart provides some insight into how federal employees and retirees fared in periods of high inflation. As noted in the article Is Inflation 5% or 14%?, comparing the two periods is not completely accurate because how we measure inflation has changed. The comparison may be unfair to President Carter as a result.
The pay raises and the COLAs are clearly higher during periods of inflation. Check out 53 Years of the Annual Federal Pay Raises for more information on past federal pay raises.
