Every year, Cost of Living Adjustment (COLA) is created 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 average CPI-W for the third quarter of 2021 was 268.421.
As previously stated in an article that can be found in the Federal News Bulletin section of Federal Benefits Service, the 2022 federal retiree cost-of-living adjustment (COLA) will be 5.9 percent for those under the Civil Service Retirement System (CSRS) and 4.9 percent for those under the Federal Employees Retirement System (FERS).
Under the COLA equation, the sum of a COLA is determined from the percent change in the base quarter price index of the year prior to the year in which the COLA is ready to become effective (with the final number adjusted to nearest 1/10 of 1 percent). Using this formula, we can speculate what 2023 will look like.
As of February 2022, the trend toward a 2023 COLA is:
( 278.943 – 268.421 ) / 268.421 x 100 = 3.919 (adjusted to the nearest 1/10 of 1 percent = 3.9%)
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 8.6 percent over the last 12 months to an index level of 278.943 (1982-84=100), according to the Bureau of Labor Statistics (BLS).
During the month of February, the index rose 1% prior to the seasonal adjustment.
Trend For Estimated 2023 COLA
(FERS / CSRS / Social Security)
The Consumer Price Index for March is scheduled to be released on April 12, 2022.
2023 COLA will be officially released by the Social Security Administration (SSA) in mid-October 2022. The SSA calculates the percent change between average prices in the third quarter of the current year (ending on September 30) while factoring in the third quarter of the previous year.
According to the BLS, the CPI-W is the standard index capable of measuring increases in the prices of consumer goods, including costs of food and beverages, clothing, housing, transportation, medical care, recreation, education, communication, amongst other things.
If the 2023 COLA increases 7-9%, it could be difficult for social security to keep up with the current levels of inflation. The inability of annual Social Security benefit increases to keep pace with inflation is in fact a common complaint among federal advocates, many of whom who say the COLA would be better off if it were based on more than just CPI data.
Regardless, there is still plenty of time until October, when the Social Security Administration will have to determine the official COLA for 2023. The final figure will hinge on inflation, which is currently a wild card with the volatile national and world economy. It is clear that the Federal Reserve is aiming to tame inflation through a series of interest rate hikes throughout 2022.
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