The Associated Press reports that preliminary analysis shows an unimpressive increase in Social Security benefits of just 1.5% next year, one of the lowest since 1975. The average increase since the adoption of automatic cost of living adjustments has been 4.1%.
Social Security benefits are pegged to the Consumer Price Index for Urban Wage Earners and Clerical Workers(CPI-W), which has been showing very little increase this year due to the continued weakness of the demand economy. However, many argue that the CPI-W understates the cost of living actually faced by senior citizens. Since seniors consume a different proportion of goods than the average American, the basket of goods used to calculate CPI does not necessarily represent their own expenses, which tend to be weighted more heavily towards medical care, where prices rise more quickly than in other industries. In other words, a small increase in CPI-W while health care costs continue to rise means that seniors will have to make their Social Security payments stretch further than before.
This cost of living increase, which will be officially announced after the release of September’s inflation numbers, also affects veterans’ benefits and federal pensions, who will not be pleased to see so small an adjustment to help them keep up with rising prices.