Social Security COLA for 2023 Biggest since 1981, Might Finally Outpace Inflation, Unless Inflation Dishes Up More Surprises
By Wolf Richter
Beneficiaries got whacked over the head in 2021 and 2022 by raging inflation that outran the COLAs.
Among the raging and worse-than-expected inflation data released today was the Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W), which the Social Security Administration uses to calculate the Cost-of-Living Adjustment (COLA) for Social Security benefits.
For September, the CPI-W jumped by 8.5% from a year ago, after the 8.7% jump in August and the 9.1% jump in July. The COLA for 2023 will be the average of the three: 8.7%, the highest since 1981.
For 2021, the COLA was only 1.3% (set in the third quarter of 2020), even as inflation began to rage, and the purchasing power of the Social Security benefits dropped sharply.
In October 2021, with inflation raging, the COLA for 2022 jumped to 5.9%. There was some jubilating among beneficiaries that there was finally a big increase to keep up with rising costs, after the 0% to 2% increases for most of the prior decade. But those hopes got whacked down by reality because in 2022, as benefits rose by 5.9%, CPI inflation jumped by over 8% and in some months well over 9%, and that big COLA got eaten up by inflation plus some, and the purchasing power of the Social Security benefits dropped again.
There are now hopes that the Fed’s rate hikes and QT [Quantitative Tightening] will finally put a cap on inflation this year and will bring it down next year. If that’s the case, the 8.7% COLA may actually be larger than CPI inflation in 2023, and benefits might actually regain a little of the purchasing power they’d lost.
If that’s not the case, if inflation continues to dish up nasty surprises, which it has a tendency to do, 2023 might be another year of further belt-tightening…..
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Continue reading this article at Wolf Street.
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