Inflation Report for May 2023
The official report on inflation for May has been released. The Consumer Price Index (CPI-U) for all urban consumers rose 0.1% in May, according to the Bureau of Labor Statistics (BLS). The all-items index rose 4.0% over the past 12 months.
The biggest monthly contributor to the inflation index was the index on shelters, up 8% last month. In the same month, the domestic food index increased by 0.1% and the out-of-home food index increased by 0.5%. By contrast, the energy index fell 3.6% in May.
2023 COLA hits 40-year high: 2024 CPI-W index calculation
For many readers, the urban wage and office worker consumer price index (CPI-W) is the most important inflation indicator. This is because the CPI-W index is used to calculate the Federal Retirement and Social Security Annual Cost of Living Adjustment (COLA). The index has increased by 3.6% over the last 12 months.
The annual COLA rate is calculated by comparing average inflation rates. third quarter of the year (July, August, September). In other words, the annual COLA increase is determined by comparing year-to-year changes in CPI-W based on the third quarter monthly averages for July, August, and September.
The CPI-W figure for May 2023 is 304.127, up 0.3% month-on-month. The index is now about 4.4% above the average CPI-W in Q3 2022.
Inflation has pushed social security beneficiaries’ cost-of-living adjustments to a 40-year high this year, while checks increased 8.7%. But with inflation receding, his COLA next year could be less than half that. The Senior Citizens Federation was held last month. The next COLA is estimated to be 3.1%.
If this prediction is correct, COLA in 2024 will be the lowest in three years. COLA for 2022 is up 5.9%, and last year he was 8.7%.
Last year, federal retirees received one of the biggest “salary increases” in decades, with an annual COLA of 8.7%. That won’t happen this year.
2024 COLA vs. Past 10 Years
It is too early to know the exact amount of the next COLA increase.
The final count won’t be known until October, but COLA payouts next year, 2024, could fall below 2%. That’s a pessimistic scenario (depending on your personal perspective). This means that the approximate value of the COLA adjustment is back to what his COLA looked like for most of the last decade, before the 5.9% and 8.7% increases due to the very high inflation of the past two years.
The reality is that lower COLAs are often good news for retirees because inflation is lower. The loss of purchasing power is even more difficult to calculate, but is often more detrimental to post-retirement retirees than current federal employees. Current employees may receive promotions and other income increases, but retirees will not unless they take another job for additional income.
For FedSmith readers, several data points are important to economic security. The Bureau of Labor Statistics calculates annual inflation rates. The annual COLA increase is based on the formula using the CPI-W index mentioned above. Annual federal salary increases are determined annually through a political process, depending on the actions and decisions of the President and Congress.
Comparing these data points from 2010 to 2022: For those unfamiliar with each of these calculations, be aware that there are years when federal pay raises are zero. It is possible for the annual COLA to be zero. As this graph shows, missing COLAs and pay raises don’t often happen in the same year.
Also note that annual salary increases are limited to the last annual salary increase for current federal employees. The actual salary increase will vary for each Federal employee, as pay increases do not include other variations in the average annual salary of Federal employees (promotions, intra-grade raises, etc.).
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