Coronavirus Throws Monkey Wrench Into COLA Calculations

Coronavirus Throws Monkey Wrench Into COLA Calculations

By Mary Johnson, editor

Impute.  Today’s word comes to us from the economists at the U.S. Bureau of Labor Statistics (BLS).  Since March of this year, they have been forced to use this estimation technique much more frequently than usual in calculating the monthly consumer price index (CPI) due to the coronavirus.

The word “impute” has two distinct meanings, both of which are appropriate to understanding Social Security annual cost of living adjustments (COLA).  To the economists, “impute” refers to “the assignment of a value to something by inference from the value of the products or processes to which it contributes.”  To the rest of us, “impute” means — “a charge or claim that someone has done something undesirable.” 

I’m pretty certain that older voters will impute that someone has done something undesirable when they learn that the 2021 COLA has been calculated using a much smaller number of price data samples.  Smaller data sets increase the chances of missing the full picture of price changes, and can lead to skewed results.

To be fair, the guilty party isn’t the BLS.  During March through May, they faced insurmountable obstacles to collecting the data they need.  Lock downs, shortages, and millions of people who are unable to pay their rent on time, made it all but impossible in some circumstances for BLS staff to collect all the price info that they typically do.  In routine times, about 65% of CPI price data and 50% of rent data is collected by personal visit.  This type of data collection has been suspended since March, with data collected online and by telephone instead.  By May the list of “data inadequate for publication” was almost as long and empty as those shelves in your local supermarket during March through May.

The BLS follows a procedure when it cannot obtain a price.  According to the BLS, “missing prices are generally imputed by the prices that are collected in the same or similar geographic area and item category.  Essentially, the price movement of items that are not collected is estimated to be the same as those that are collected for a given item and geographic area.  In other words, the CPI in recent months has not been completely computed on actual price data.  There is significantly less data, smaller samples, and increased risk that estimates could misrepresent the actual price change picture.  According to the most recent data through June, prices are still so low that no COLA would be payable in 2021, yet much of the public is complaining about price spikes on the items they are buying.

The index used to calculate the annual COLA is not representative of the prices experienced by retirees.  That index, the Consumer Price Index for Urban Workers and Clerical Workers (CPI-W), tracks price changes in the market basket of younger working adults who have different spending patterns than retirees.  Older Americans spend a greater portion of their incomes on medical costs and housing, which tend to rise in price more quickly.

If the government were to use a more representative CPI to calculate the COLA, such as the Consumer Price Index for the Elderly (CPI-E), a very small COLA might be payable in 2021, around 0.6 percentage point.  Or, to provide real benefit adequacy, and avoid extreme Medicare Part B premium spikes this this fall, Congress should consider providing an emergency minimum COLA benefit boost.  TSCL is asking Members of Congress to guarantee a raise of no less than 2.5%.

TSCL recently sent letters to House and Senate leaders and is working to bring the issue to the attention of Congress.  We need your help to spread the word.  Is inflation really ZERO?  Or has someone imputed something undesirable?


Editors Note:  TSCL is looking for volunteers who are willing to speak to the news media about the Social Security COLA.  Does the COLA adequately represent rising prices?  Do you have actual examples of price increases experienced since last October to share?  Are rising costs cutting off access to prescription drugs, healthcare services, housing, food, or other essentials?  Please send us an email! [insert link]