While Social Security beneficiaries are enjoying a truly historic 8.7% COLA “raise” this year–the largest on a percentage basis in 41 years–early indications based on inflation trends are that the 2024 cost-of-living adjustment could fall back below 3%.
“Long-term trends indicate a significant drop in the average monthly rate of inflation over the past 12 months and suggests that the next annual cost of living adjustment in 2024 could drop below 3%”
The Senior Citizens League’s Mary Johnson
February inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the same index that’s used to calculate the COLA, has moderated to 5.8% from one year ago according to figures released today by the Bureau of Labor Statistics.
But as Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League points out, some prices remain stuck in high gear. “Long-term trends indicate a significant drop in the average monthly rate of inflation over the past 12 months and suggests that the next annual cost of living adjustment in 2024 could drop below 3%,” Johnson said in a press briefing released this morning.
Although the 2024 Social Security COLA is still seven months away from being officially determined and announced, there is a growing body of evidence to back up the case for a much smaller COLA next year.
As The Motley Fool pointed out in a recent article, the increasingly likely possibility of a recession is a big reason why, as a recession would be expected to send the U.S. inflation rate tumbling during the second half of 2023. Social Security’s COLA calculation is based on monthly CPI-W figures from the third quarter (July-September). If the rate of inflation sinks significantly during that time period, so will next year’s COLA for Social Security beneficiaries.
Many economists were predicting a recession—a significant, widespread, and prolonged downturn in economic activity typically defined as two consecutive quarters of negative economic growth—in 2023 even before the second-largest bank failure in U.S. history that occurred last Friday when the sudden meltdown of high-tech lender Silicon Valley Bank was revealed.
Brad McMillan, chief investment officer at Commonwealth Financial Network, wrote in a blog post on Monday that banks as a whole are likely to cut back on their lending activity and risk until they “get their houses in order,” which will by default slow economic expansion and pull the markets down. “In some respects, this is good (it is what the Fed has been aiming for), but it makes a recession much more likely, quite possibly in the short term,” McMillan wrote.
It remains possible that the worst of a recession would avoid the third quarter when the following year’s Social Security COLA is determined, but all signs are currently pointing toward a much-lower COLA raise in 2024.
2023’s 8.7% COLA raised the average monthly retiree benefit by about $144 to $1,800. The COLA raise was 5.9% in 2022 and 1.3% in 2021.
SEE ALSO:
• Historic 8.7% Social Security COLA Finalized for 2023
• Bernie Sanders Reintroduces Bill to Increase Social Security Benefits, Extend Solvency