When it comes to prognostications, economists frequently seem either behind or chasing the power curve. Their prediction for April 2021 was an inflation rise of 3.6% They missed the mark. The Consumer Price index was 4.2%, the biggest increase since 2008.
Why such an acceleration? The biggest reason was that one year ago the economy was brought to its knees when the worst of the pandemic hit.
The Fed’s take on that worrisome inflation rise? Don’t worry, they say. The current rise is temporary and not likely to influence future policy. The Covid effect, they claim, was a distorting blip. Economists and Federal Reserve policy makers say the 4.2% rise will eventually settle down to around a 2% range, well within the comfort range of the central bank.
In the meantime, President Joe Biden and his advisors are struggling with rising energy prices and a nearly 50% increase in the cost of gasoline and higher fuel oil costs (37.3%). Likewise, the recent cyberattack on the Colonial Pipeline highlighted troublesome weaknesses in the security of the nation’s infrastructure.
What does all that mean for seniors struggling to get by in an economy where they are disproportionately affected by inflation?
Cost-of-living adjustments are tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the prices of what working wage earners pay for groceries and services that the average consumer buys. Those goods, however, are different from older Americans, who, for example, pay more of their income for medical services.
Another anomaly in the CPI-W is that the Covid-19 quarantine skewed buying habits of home-bound consumers, driving food costs up and nearly wrecking the restaurant business.
The Social Security Administration also has an experimental index, which measures inflation on goods bought by the elderly. The Consumer Price Index for the Elderly (CPI-E) isn’t currently used, but the calculation is that the CPI-E increases faster than the CPI-W annually by 0.2%. It’s not a big jump, but over 20 years it could mean a 4% higher aggregate benefit—that is if Social Security is still around in 20 years.
Social Security benefits beginning in January 2022 will be tied to the index of the third quarter of 2020 through September 2021. That increase in the index will be the 4.2% monthly inflation figure released by the government.
Retired people also face another hit affecting their Social Security benefits. Most recipients pay for Medicare out of their benefit checks. Inflation adjustments in Medicare premiums will be further subtracted because of increased costs of the Medicare program.
Given the fact that since September 2020 prices in everything have gone up by nearly 2% — but the predicted Social Security inflation adjustment was only 1.3% — we could be looking at the largest increase in 10 years. Some predictions are that the rise in inflation could be higher as the summer economy gets into high gear.
Still, anyone who relies totally on their Social Security check, if the increase in benefits is about 2%, will have to get by on an average monthly benefit payment of about $1,572.