A Coronavirus Caused Recession Could Eliminate Next Year’s COLA

A Coronavirus Caused Recession Could Eliminate Next Year’s COLA

Older Americans have the highest health risk from the coronavirus and now the coronavirus-caused economic recession, along with falling oil prices, put the next Social Security cost-of-living adjustment (COLA) in jeopardy.  The rate of growth in consumer price inflation was already slowing prior to the arrival of the coronavirus.  The cost of petroleum products plunged in March, down 10.2% from March one year ago, according to the Bureau of Labor Statistics.  A drop that sharp in the cost of petroleum products has an outsize effect in pulling down the Social Security COLA, because oil products are given greater importance in the consumer price index (CPI) that’s used to calculate the annual inflation adjustment — the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

Because so much of the public has been under emergency orders to stay at home or in quarantine, there’s much less demand for certain types of goods (such as apparel, entertainment and travel), and that could lead some companies to drastically reduce prices.  The result of falling prices means that the COLA for 2021 could be extremely low and if prices of gasoline and other items don’t recover over the next four months, that could even wipe out the entire annual adjustment.

Over the past decade, inflation has been so low that the annual COLA adjustment has averaged just 1.4 percent, less than half the average 3% rate of inflation from 1999 to 2009.  There was no COLA payable at all in 2010, 2011 and 2016, and the COLA was just 0.3% in 2017.

On the other hand, TSCL is closely watching widespread shortages of essential consumer items, pharmaceuticals and medical gear.  Unprecedented demand and need for healthcare services is expected to lead to spiking costs on certain items in short supply, particularly for healthcare.  That type of situation would sharply cut into the buying power of Social Security benefits, because healthcare costs are not adequately reflected or weighted for importance in the CPI-W.

The situation is going to require everyone to pull together.  A recent survey by The Senior Citizens League found that 20 percent of survey participants reported spending more than $1,000 per month on healthcare costs, yet the average Social Security benefit in 2020 is just $1,500.  The Senior Citizens League is working for legislation that would help safeguard Social Security benefits and would guarantee beneficiaries a COLA of no less than 3 percent for 2021.  How are rising costs affecting you?  Take TSCL’s Survey of Senior Costs   .