The primary objective of the Cost of Living Adjustment (COLA) is to safeguard the purchasing power of Social Security and Supplemental Security Income (SSI) benefits against the eroding effects of inflation.
This adjustment is based on the percentage rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), observed from the third quarter of the most recent year for which a COLA was determined to the third quarter of the present year.
In instances where there’s no increase, no COLA is applied.
The CPI-W, a metric computed by the Bureau of Labor Statistics within the Department of Labor, is the official gauge mandated by law for the Social Security Administration to compute COLAs.
As per the latest consumer price data disclosed, the projected Social Security cost of living adjustment might be slightly higher than the estimation from a month ago.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the index employed to ascertain the COLA, showed a year-over-year increase of only 2.3 percent.
However, the average inflation rate over the past twelve months has marginally risen, affecting the COLA forecast.
What months are used to calculate COLA?
It’s important to note that there are still a couple of more months of data to be collected before the COLA announcement in October, which means this estimation is subject to change.
The COLA is calculated based on the inflation rate during the third quarter – encompassing July, August, and September – as gauged by the CPI-W.
The combined inflation rate for these three months is averaged and then compared to the average for the same period one year earlier.
The percentage variance between the two averages determines the extent of the COLA adjustment, applicable to the checks disbursed in January 2025.