Military retirees, VA beneficiaries, and Social Security recipients will pay close attention to a key August inflation figure, due out Sept. 13, as it marks the second of the three data points used to calculate the annual cost-of-living adjustment (COLA) for many federal payments.
What will that figure be? Here are three potential paths forward, plus a reminder on how the final adjustment comes together.
[RELATED: MOAA’s COLA Watch]
Scenario 1: Inflation-Busting Continues
Federal Reserve Chair Jerome Powell has commented repeatedly on the importance of getting inflation down to 2%, emphasizing the point 20 times during a July press conference. His credibility is sustained by his results, with inflation dropping from around 9% to about 3% in a year. But challenges will come as he diligently stays the course to finish that last leg toward 2%.
Forecast: If Powell gets his way, anticipate August’s increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) – the figure used to calculate COLA – to stay at par or slightly lower than July, maybe a tenth or two-tenths of a percentage point below that month’s figure of 2.7% above the FY 2023 baseline.
Scenario 2: Consumers Rule
Consumer spending was up earlier this year but appears to have slowed recently, Powell said last month. While those who interpret the economy as strengthening may seek rate-hike relief, Powell made clear his intentions to continue bringing inflation down to 2%. But even without rate-hike relief, economic growth could bring more spending, wage increases … and ultimately inflation.
Forecast: If consumers get their way, anticipate August’s CPI-W figure to stay at par with July’s number, or slightly higher.
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Scenario 3: Fiscal Uncertainty
The mounting congressional turmoil set off by fiscal disagreements on key appropriations across the board leads to questions that will affect all parts of the economy, including inflation calculations: Will lawmakers fund the government before it shuts down? And if so, how?
A recent Reuters report outlined how markets have struggled during previous shutdowns. And while the funding won’t dry up until after the September figures are calculated, news on the likelihood of a solution will impact how investors and consumers behave as the fiscal year wraps up.
Forecast: It’s difficult to say what the markets will do as the budget fix seems far off. One positive note: Any inflation increase or decrease brought about by shutdown-related concerns could level out in the quarter following the reopening of the government, as confidence is restored.
The August CPI-W figure, set for September release, is the second of three months used to calculate the annual COLA. The July, August, and September figures are averaged, and that number is compared with the FY 2023 baseline to reach the final figure. For example, if inflation remains steady and the July CPI-W of 299.899 ends up a good indicator of the final three-month average, next year’s COLA would be 2.7%. For the math fans: [(299.899-291.901)/291.901 x 100].
MOAA continues tracking these figures, not only to provide retirees and others with COLA-connected income a way to track the increase, but also to ensure we remain at the forefront of protecting the value of service-earned benefits. Cutting COLA for military retirees, especially in an austere budget environment, has been discussed (and enacted) by Congress in the past, and a recent Congressional Budget Office proposal to change COLA calculation would save the government billions … partially on the backs of military retirees.
Keep up with the latest on this issue and others on MOAA’s legislative priority list at MOAA’s Advocacy News page, by subscribing to our weekly newsletter, and by joining our Legislative Action Center.
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