by Bill McBride on 8/15/2013 05:05:00 PM
Thursday, August 15, 2013
The BLS reported this morning: "The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.0 percent over the last 12 months to an index level of 230.084 (1982-84=100). For the month, the index was unchanged prior to seasonal adjustment."
CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and not seasonally adjusted.
Since the highest Q3 average was last year (2012), at 226.936, we only have to compare to last year.
Click on graph for larger image.
This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.
Currently CPI-W is above the Q3 2012 average. If the current level holds, COLA would be around 1.4% for next year (the current 230.084 divided by the Q3 2012 level of 226.936).
Even though CPI-W was up 2.0% year-over-year in July, the adjustment will probably be lower than 2.0%. Last year gasoline prices increased sharply in August and September - pushing up CPI-W for those months, and this year gasoline prices are down a little in August. So CPI-W will probably not increase as much this year in August as in Aug 2012.
This is early - we need the data for August and September - but my current guess is COLA will be a little lower than the 1.7% last year.
Contribution and Benefit Base
The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2012 yet, but wages probably increased again in 2012. If wages increased the same as last year, then the contribution base next year will be increased to around $117,000 from the current $113,700.
Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).