Consumer Price Index (CPI) is an index prepared by the U. S. Department of Labor that outlines the rise in costs for necessary goods and services. It’s is used to figure out cost of living adjustments (COLA) in the Social Security Administration’s (SSA) payments.
The CPI is kept by the Bureau of Labor Statistics in the Department of Labor. Specifically, the CPI tracks the prices people pay for goods and services every month to measure inflation. At the end of the year, they use the averages to determine if the cost of living has increased.
There are many versions of the CPI for specific industries and thousands of products indexed. The SSA uses the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which includes all items, including food and energy.
The CPI can’t measure what the exact amount of inflation will be for the following year. It’s only an estimate. Therefore, there is much controversy over the amount. Some feel the COLA is too generous, and some feel the COLA isn’t enough.
The SSA starting use COLA adjustments in 1975, when they realized the cost of most things were rising, so they needed to increase benefit payments. Before that, the amount of benefits was only raised sporadically by special acts of Congress. Since 1975, the cost of living has raised about 160 percent, at about 4 percent per year on average.
COLA adjustments are automatically applied to your Social Security benefits every year depending on when you first started receiving benefits. For the recipients who starting getting benefits in 1982 or before, their benefits are adjusted on July 1. For the all the other beneficiaries who starting after 1982, their benefits are adjusted on on January 1.