No COLA for Social Security Recipients in 2016
Or that is what is being thought by the Social Security Administration as we round out 2015 and head into 2016. And the culprit? “Persistently Low Inflation.” How could that be, didn’t the Fed just meet and there were concerns of looming inflation? Apparently not enough inflation to rock the CPI-W.
The SS COLAs are determined in a different manner using the CPI-W which is the consumer price index for all urban wage earners and “clerical workers” as compared to the more commonly know CPI-U for all urban consumers. Ending the 12 months in August, the CPI-W has been trending downwards(?) at 3 tenths of 1%.
It kind of makes sense as we are now talking about the upper 10 of the income brackets starting at ~$110,000. Going into the future, Social Security trustees suggest COLAs will average 2.7%. And banks, the Fed, and Congress continues to worry about inflation.
This will be the 3rd year after 2010 and 2011, a COLA has not be given to Social Security recipients.
Run – When the Fed talks of inflation it refers to PCE, not CPI. The Fed has always excluded changes in prices from food and energy from its calculations.
PCE, on an annual basis, is up 1.6%. On a six months basis it is at 2%. So the Fed’s measure of inflation is near the target of 2%. The YoY change in CPI-W is negative.
The fall in gas prices is dragging down CPI while higher rents are pushing up PCE.
PCE data:
http://www.dallasfed.org/research/pce/
Thanks for the information. Other than mention what the Fed thought about inflation, I do not believe I mentioned how they came about their calculation for it. You are right on the CPI-W.
SSA does not average the data. So a relatively high value in September 2014 means an offsetting relatively low value in September 2015.
My gut tells me when something is not right…I was recently informed by the very courageous and soon to be US Senator I hope Rep. Alan Grayson Fl. that the SSA has been using the CPI-W index for seniors for years. He states that this is the wrong index and they should have been using the CPI-E index for seniors. One of the main reasons for this is because the CPI-W index does not price in medical and prescription drug inflation the way the CPI-E index should for seniors. I agree and therefore the SSA owes many seniors a back pay check for this error. Please go see Rep. Grayson’s and support him in Congress on this issue and also his views on trade are outstanding…Just my .02 cents.
I have advocated for CPI-E here before, but it remains an experimental metric than was never finalised.
http://www.bls.gov/news.release/cpi.br12396.a06.htm
“When the Fed talks of inflation it refers to PCE, not CPI. The Fed has always excluded changes in prices from food and energy from its calculations.”
This is not quite correct. PCE and CPI actually track each other fairly closely. There are difference between the two because of slight differences in the formula, weigthing of various items, and scope of items included. Both basic PCE and basic CPI include food and energy in the calculations. These are often referred to as “Headline inflation” because they are the ones most often seen in the newspaper.
To reduce the effect of misleading volatility that might whipsaw Fed policy, the Fed also computes modified versions of both the PCE and CPI called Core Inflation. Core Inflation removes volatile food and energy prices from the calculations.
Yet another method of removing volatility, called Trimmed Mean PCE, is a more controversial calculation that uses mathematical methods to remove price change outliers while still including food and energy.
The Fed uses all of these various measures of inflation (PCE, CPI, Core PCE, Core CPI, Trimmed Mean PCE, and others) to make their decisions, but when they talk about inflation targeting, they generally refer specifically to Core PCE, which is basic PCE with food and energy removed.
The link above to Trimmed Mean PCE produced by the Dallas Fed is not the one the Fed uses as their target, although the differences from Core PCE are generally rather small.
Bill:
Thank you for your explanation.
As someone who has been advocating for the adoption of a real CPI-E instead of CPI-W for some years, and mindful of the fact that the “E” actually stand for “Experimental” and not “Elderly” (though it experimentally measures the cost for the latter) it has been a little humbling to learn from smarter/more professional people than me that the two metrics have actually converged over the last couple of years. Maybe ACA related or not.
Adoption of a fully fleshed out CPI-E (which Dean Baker claims would cost about $30 million in actual analyst/data crunching time) might have been a big deal a decade ago. But maybe not so much now.
Plus if we just adopted a sane method of bargaining for drug costs under Medicare instead of letting Big Pharma just price things where they want it might well be that a fully fledged out CPI-E would come in less than CPI-W. Because mostly seniors get hammered on out of pocket perscription costs and don’t give a shit about prices for electronics and new shoes. Or kale. Or energy drinks.
Something has changed here and I had to approve you? In any case, write well and prosper.
You probably have already read BillB’s enlightening explanation of the differences in each of the economic measures. If not, it is worth a read. Indeed, the differences BK points out are not so great. $30 million is not so great either. I sat at the Stuttgart Oktoberfest in 2010 drinking liters of an excellent beer with my German sponsor and a couple of Irish. The people of Éire were complaining of the debt incurred from the collapse in 2008 and how it was impacting them. In any case their number was on the order of 8.6 billion € as they explained it. A mere drop in the bucket for the US (it later blossomed much higher and still payable). It was hard to understand why this would be such an impediment the same as $30 million to be solvent again. A sliver of the US Defense cost spent and they would be solvent again.
We sat those years doing nothing to shore them up as well as other countries in a sorta Marshall plan type of arrangement and the US could have done it. They could have done it and reaped the growth these countries would have experienced coming out of a banking/financial world caused recession. The same as Congress will not let Medicare negotiate pharma and other cost associated with healthcare to allow the country to reap the benefit of costs put to greater productivity. Seniors look to the future the next day brings and whether they will survive it.
I digress and thank you for your reply.