Social Security COLA Below 3% Looks Likely for 2024

“Every month, I calculate the average rate over the past 12 months, in order to project third-quarter inflation for the CPI-W, which is used to calculate the COLA for the following year,” she explains. “That 12-month average has been coming down, and that was true even when month-to-month inflation rose in the short term in January and February. The big picture is that inflation has been moderating, just not as fast as the Fed and economists hoped.”

While she sees this as a less likely outcome, if the higher monthly inflation trend is sustained for several months, the COLA could range somewhat higher than the current projection, but there’s too much unknown to confidently say exactly what might happen.

How a 0% COLA May Come About

As Johnson explains, it is important to consider the fact that the only months that factor directly into the COLA calculation are those in the third quarter — i.e., July, August and September. To generate the COLA, the SSA adds the CPI-W readings from these months, then divides this totaled figure by three to get an average third-quarter reading that can then be compared with the same reading from the previous year.

Simply put, if the current-year average reading ends up lower than the previous year’s average reading, that would imply that the average price for goods and services, as measured by the CPI-W, has fallen year over year.

As Johnson recalls, this has in fact happened a handful of times since the CPI-W was introduced in 1975, and in such cases, Social Security benefits remained the same from one year to the next.

“There is no COLA in that situation, and given the sky-high inflation we saw in last year’s third quarter and the fact that inflation is moderating, if slowly, it is possible there could be no COLA in 2024,” Johnson explains. “This is probably a surprising and scary thing to hear for many seniors, because they are feeling very real pain due to a loss of purchasing power.”

(Image: David Palmer/ALM)