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Wednesday, September 17, 2014

Early Look at 2015 Cost-Of-Living Adjustments and Maximum Contribution Base

by Calculated Risk on 9/17/2014 08:30:00 AM

From the Bureau of Labor Statistics (BLS): Consumer Price Index - August 2014

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment. ... The energy index fell 2.6 percent, with the gasoline index declining 4.1 percent and the indexes for natural gas and fuel oil also decreasing.
The index for all items less food and energy was unchanged in August; this was the first month since October 2010 that the index did not increase.
emphasis added
On a year-over-year basis, CPI is up 1.7 percent, and core CPI is up also up 1.7 percent.  This was below the consensus forecast of no change for CPI, and a 0.2% increase in core CPI.

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI.

The BLS also reported this morning:
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.6 percent over the last 12 months to an index level of 234.030 (1982-84=100). For the month, the index fell 0.2 percent 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 is not seasonally adjusted (NSA).

Since the highest Q3 average was last year (Q3 2013), at 230.327, we only have to compare to last year. 

CPI-W and COLA Adjustment 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.

Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).

Using the average for July and August, CPI-W was up 1.7% compared to Q3 2013.

Gasoline prices have continued to decline in September, and COLA will be below 2%, and possibly close to the 1.7% in 2012.

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 2013 yet, but wages probably increased again in 2013. If wages increased the same as last year, then the contribution base next year will be increased to around $120,500 from the current $117,000.

Remember - this is an early look. What matters is average CPI-W for all three months in Q3 (July, August and September).