COLA and Inflation
The latest inflation report was released on January 15, 2025, reflecting the inflation data for December and the end of 2024. Here is a quick summary:
- Consumer price index (CPI) up 0.4% in December, above the forecast of 0.3%
- Core CPI, which omits food & energy, up 0.2% in December—below-forecasted increase
- 12-month rise in CPI up to 2.9% from 2.7% last month
- Increase in core CPI in past 12 months down to 3.2% from 3.3%
December was the third consecutive month of gains in the 12-month consumer price index. The increase in consumer prices in December was not very good: A 0.4% increase spearheaded by household staples such as food and gas.
A larger increase than had been expected in hiring in November and December, a decline in the unemployment rate to 4.1%, and several months of lingering inflation have stalled any discussion of further interest rate cuts.
The all-items index rose 2.9 percent for the 12 months ending December after rising 2.7% over the 12 months ending November. The all-items less food and energy index rose 3.2% over the last 12 months. The energy index decreased 0.5% for the 12 months ending December. The food index increased 2.5% over the last year.
CPI-W Index
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is the index of most interest to retired federal employees. This index increased 2.8% over the last 12 months to an index level of 309.067. This index did not change in December 2024.
Starting this month, there was a 2.5% cost-of-living adjustment (COLA) for Civil Service Retirement System (CSRS) annuities, military retirement annuities, and Social Security benefits. There was a 2.0% COLA for Federal Employees Retirement System (FERS) annuities, applicable to payments starting in January 2025.
Annual COLA and Annual Average GS Pay Raise
The projection for the 2026 COLA from the Senior Citizens League is 2.5%. Here is a chart showing the annual COLA increase for the last 10 years. The 2022 increase (payments started with the higher rate in January 2023) was an anomaly reflecting the highest increase since the Carter administration.
Year | COLA (%) | Average GS Pay Raise (%) |
---|---|---|
2016 | 0.0 | 1.0 |
2017 | 0.3 | 1.0 |
2018 | 2.0 | 1.4 |
2019 | 2.8 | 1.4 |
2020 | 1.6 | 2.6 |
2021 | 1.3 | 1.0 |
2022 | 5.9 | 2.2 |
2023 | 8.7 | 4.1 |
2024 | 3.2 | 4.7 |
2025 | 2.5 | 2.0 |
The annual COLA for the coming year is very difficult to predict. There are too many variables, and these can change unexpectedly.
When comparing the annual COLA amounts, they are usually not the same. A formula determines the annual COLA, and the amount for the coming year is announced in October. The pay raise amount is determined through a complex political process that varies from year to year.
Another difference is that the annual pay raise understates the amount of the annual pay increase for GS employees. It does not take into account within-grade increases, promotions, or bonus payments that can occur during the year. The COLA amount does not change during the year.
The actual salary increases vary based locality adjustments, GS grade, and the step within the GS system. Additionally, some years have seen pay compression issues, particularly affecting higher-grade employees in some locality pay areas.