Deflation Means No COLA for Seniors

Sorry, senior citizens: there will be no cost-of-living adjustment in your Social Security payments this year.  You are victims of deflation.

Today the Labor Department reported that the Consumer Price Index rose 0.2% in September and fell -1.3% in the last twelve months. This was no great surprise, since it was the seventh consecutive month of negative year-over-year CPI.  September is a special month, however, because it is the end of the federal government’s fiscal year and is used to determine inflation adjustments for the next year.

By law, Social Security payments cannot go down – but they don’t have to go up, and this year they won’t.  This may come as a surprise to retirees who have grown accustomed to getting a “raise” each year.  The last year without a COLA was 1975.

Even more aggravating, health care was one of the few CPI categories to actually go up in the last year while much of the decline was related to energy costs. Retired people, of course, are often above-average consumers of health care and below-average consumers of energy.  Their cost of living hasn’t dropped, negative CPI notwithstanding.

President Obama and members of Congress are keenly aware that senior citizens won’t like this development at all.  They are therefore seeking to defuse the political explosive environment with a one-time $250 payment to all Social Security recipients.  This would be in addition to the $250 “economic stimulus” payments sent to the same group earlier this year.

These payments will largely offset the lack of a Social Security COLA this year, and some seniors may actually come out ahead.  Nonetheless, at least one lobbying group is already whining that it’s not enough.  The younger workers who pay the bills are, apparently, not their concern.

by Patrick Watson
Invest With An Edge