Calculated Risk 2024/7/12 08:12:00 AM
The BLS reported yesterday:
The Consumer Price Index for Urban Wage Earners and Clerical Employees (CPI-W) has increased 3.3% over the past 12 months, bringing the index level to 308.163 (1982-84 = 100). The index increased 0.1% for the month before seasonal adjustment. The CPI-W is the index used to calculate the Cost of Living Adjustment (COLA). The calculation date has changed over time (see Cost of Living Adjustment), but the current calculation uses the average CPI-W for the three months of the third quarter (July, August, September) and compares it to the all-time average for the third quarter. Note: This is not the headline CPI-U, which has not been seasonally adjusted (NSA).
• The CPI-W average for the third quarter of 2023 was 301.236.
The Q3 2023 average was the highest Q3 average, so all we need to do is compare this year's Q3 to last year's Q3.
Click on the graph to enlarge the image.
This graph shows the CPI-W since January 2000. The red line is the third quarter average of the CPI-W for each year.
Note: The year listed is the calculation year and the adjustment takes effect in December of that year (beneficiaries receive it in January of the following year).
The May CPI-W increased 2.9% year over year, but this is still early and we need data for July, August and September. My early projections are that the COLA will probably be around 2.5% this year, the smallest increase since 2021's 1.3%.
Contribution and benefit basis
The contribution base is adjusted using the National Average Wage Index, which is based on a one-year lag. Although the National Average Wage Index for 2023 is not yet available, we know that wages have risen robustly in 2023. If wages increase by 5% in 2023, next year's contribution base would increase from $168,600 today to about $177,000 in 2025.
Remember – this is an early outlook. What matters is the average CPI-W, NSA for the three months of the third quarter (July, August, September).