Social Security Analysis: Why CPI-E Is ‘Better Index for Measuring Inflation’ In Terms of COLA for Seniors
The Social Security Administration recently announced that Social Security and Supplemental Security Income benefits for 70 million Americans will increase 5.9% in 2022. Adjustments were made to help senior citizens cope with prices that are 5.4% higher than they were last year, as reported by GOBankingRates. The 2022 cost-of-living adjustment, or COLA, also represents the biggest increase in 40 years.
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Under the Social Security Act, COLA is calculated based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers. CPI-Ws are calculated monthly by the Bureau of Labor Statistics, with benefits going up if there’s a measurable increase in this price index every year.
However, some say that there’s a more accurate way to calculate Social Security COLAs.
Mary Johnson, Social Security and Medicare policy analyst for The Senior Citizens League, has been doing research on the Social Security COLA for more than 26 years. “The CPI-E tends to be a better index for measuring inflation experienced by Social Security recipients, the majority of whom are retired adults age 62 and up and younger disabled adults,” she said.
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The CPI-E, or Consumer Price Index for the Elderly, uses the same formulas and prices as the CPI-W; however, the CPI-E uses expenditure weights for households with individuals age 62 or older.
Johnson explained that the CPI-W does not survey the spending patterns of households that have adults age 62 and up who are retired. “Younger working adults have different spending patterns than retired and disabled Social Security recipients who spend more on health care, and a greater share of their income on housing,” she added.
She also mentioned that while the difference between the two indexes is about 0.2 percentage points (with the CPI-E being slightly more generous), it varies.
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“In years where there has been a big increase in petroleum prices, the CPI-W grows faster than the CPI-E,” Johnson explained. “Had the COLA been calculated using the CPI-E for the 2022 COLA, it would be 4.8%. The CPI-E tends to yield a modestly higher benefit over time.”
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Last updated: October 29, 2021
