Social Security COLA Outlook Uncertain Amid Inflation, Recession Risk

What You Need to Know

A 0% COLA for 2024 remains possible, even after inflation ticked up in April, Mary Johnson of The Senior Citizens League says.
A resurgence of inflation could still drive a higher 2024 COLA, while a recession and economic weakness could reduce it.
Putting the focus on the cost of specific food items and other tactile needs, from dental work to pet supplies, helps to make inflation’s bite more palpable.

The U.S. Bureau of Labor Statistics published its consumer price index data for April early Wednesday, showing that prices drifted upward by 0.4% in April and by 4.9% for the prior 12 months, and based on this data, the Senior Citizens League now estimates the Social Security cost-of-living adjustment, or COLA, for 2024 will be 3.1%.

This is up slightly from the league’s earliest prediction, made in March, of a COLA of 3% or lower.

In a new interview with ThinkAdvisor, Mary Johnson, the league’s Social Security and Medicare policy analyst, said she was “a little bit surprised” that inflation didn’t fall further, even though she had been hearing economists talking about a potential bump in the price index.

Despite the surprise, Johnson said, the league’s perspective about the 2024 COLA was not dramatically affected by the new April inflation data. She emphasized that a 0% COLA remains possible should the U.S. see a rapid cooling in inflation in the coming months — an outcome that is imaginable given the ongoing discussions about the looming risk of a recession.

“Folks should understand that we still have the months of May, June, July, August and September to get through before we will actually know the real COLA,” Johnson said. “This is our first formal estimate, and there’s a lot more that we need to learn before we know the final number. Ultimately, things could really change in the months ahead.”

How COLAs Are Calculated

As Johnson explained, the only months that factor directly into the final COLA calculation will be 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.

Should the current-year average reading end 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. In such cases, Johnson said, beneficiaries’ Social Security payments will remain the same from one year to the next.

As Johnson pointed out, it is still too early to say whether this is a likely outcome. On one hand, the economy could slip into recession and cause the prices of goods and services to fall. On the other, the slightly higher-than-expected inflation figure for April can be seen as a counterpoint, suggesting inflation may once again jump, propelled by a strong jobs market and the tendency of corporations to use inflation headlines as an excuse to boost prices.

“Given where inflation was in the third quarter last year, should there be a sudden reduction in inflation, there could still be no COLA for 2024,” Johnson said. “That would be an unfortunate outcome, because as our latest research shows, Social Security benefits have lost 36% of their purchasing power since 2000.”