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Social Security COLA for 2022 Expected to Be Biggest Since 2009

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What You Need to Know

  • The Senior Citizens League expects the COLA to jump 4.7% based on the CPI data released Wednesday.
  • The CPI-W, on which the COLA is based, rose 0.9% in April.
  • The league's COLA estimate could change several times before the official number is released in October, analyst Mary Johnson says.

The annual cost-of-living adjustment, or COLA, for Social Security benefits in 2022 — typically  announced in October — could be 4.7%, the highest since 2009, based on Wednesday’s Consumer Price Index announcement, according to Social Security and Medicare policy analyst Mary Johnson of The Senior Citizens League.

The Social Security Act ties the annual COLA to the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. This inflation measure rose 4.7% from 12 months ago and 0.9% in April, the Bureau of Labor Statistics announced Wednesday.

The Consumer Price Index for All Urban Consumers, or CPI-U, rose 0.8% from the prior month and 4.2% over the last 12 months, with gains reflected “in nearly every category and a sign of burgeoning demand“ giving companies the ability to pass on higher costs, according to Bloomberg News.

The Senior Citizens League’s COLA estimate is based on CPI data through April, but the actual COLA “will be based on the percentage of difference between the third-quarter average of the increase in the CPI-W from the previous year to the current year,” Johnson told ThinkAdvisor in an email.

“This is a highly unusual inflation jump,” she said. “When January 2021 data was released, I estimated that the 2022 COLA would be only 1.5%. The fact that today’s estimate is 4.7% reflects an increase in inflation over just 90 days. A 4.7% COLA would be the highest since 2009 when the COLA was 5.8%. With several more months of data left to go, this estimate could change several times.”

Johnson noted that her estimates use the actual COLA formula, for which she has a special calculator, and uses monthly CPI data.

“I calculate the average rate of increase over 12 months to project what the CPI would be for the third quarter, and then calculate what the projected COLA will be,” she explained.

She added that the Senior Citizen’s League final COLA projections for the following year ”will be released in September 2021 when the August CPI data is released, a month ahead of the official announcement.”

Excluding food and energy prices, the CPI-U rose 0.9% in April, the biggest monthly increase since 1982.