Why No Social Security COLA for 2011?

In January 2010, for the first time since 1975, when Social Security benefits were first indexed to the Consumer Price Index, Social Security benefits were not inflation-adjusted with a Cost of Living Adjustment (COLA), because the CPI-W had not increased from the third quarter of 2008 to that of 2009. Today, the Social Security Administration announced that 2011 will be the second consecutive year without a COLA.

Social Security’s COLAs are calculated based on the percentage change in consumer prices, as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter of one year to the same quarter the following year, effective the following January. Because of the big increase in energy prices in the summer of 2008, the Social Security COLA for 2009 was relatively high, namely 5.8 percent. During the twelve months following the third quarter of 2008, energy prices fell sharply and the recession de-inflated the economy, causing, the CPI-W to decline by 2.1 percent. Hence there was no COLA for 2010.

For a COLA to have been triggered for 2011, the CPI-W would have had to not only increase, but increase beyond the highest point it had reached at the end of a previous third quarter, i.e. that of 2008. Although the CPI-W has rebounded modestly over the past year, increasing by 1.4 percent, it has not surpassed its September 2008 level, and hence there will be no COLA for 2011.