For the reasons that many of us now anticipate, the present inflation will not be “transitory,” as was claimed a few months ago in an attempt to alleviate voters’ worry. But instead of slowing down, inflation is expected to accelerate significantly in 2022, having a significant influence on the 2023 COLA forecasts for federal retirees and Social Security beneficiaries. Following a 0.8% rise in the previous month, according to the most recent numbers, which show the economy’s health in March, the Consumer Price Index for All Urban Consumers (CPI-U) grew by 1.2% in March. The “all things index” has climbed by 8.5% in the previous year compared to the preceding year. With this rise in inflation, we are seeing the fastest increase since January 1982, when inflation reached 8.4%. The inflation rate now is likely more significant than in 1982, as will be detailed further below, since the method of assessing inflation has changed over the last 40 years.
Inflation in 2022 and the CPI in 2023
The federal government uses a BLS index to calculate the yearly COLA. Moreover, debate surrounds the CPI-W, which monitors price trends for urban wage earners and clerical workers, and this indicator grew 9.4% over last year. Example CPI formula:
- CPI-W prices are based on third-quarter readings (July to September).
- Compared to the third quarter average CPI-W, the results are favorable (2021).
- To calculate it, compare the average third-quarter value from 2022 to 2021. (2021).
- Those eligible for 2023 raises will receive the difference (rounded to the closest 0.1 percent).
- How much will inflation climb, and how will the final COLA be calculated? Mid-October will reveal this question’s response.
- In 2021, CSRS pensions and Social Security payouts will rise by 5.9% due to inflation. The value of FERS pensions will increase by 4.9% a year between 2022 and 2023.
In 2022, the average CPI-W for the third quarter is 5.50% higher than in 2021. The annual COLA is calculated by averaging July, August, and September in the third quarter and dividing by the same three months in the prior year. Last month, the Senior Citizens League predicted that inflation would raise the CPI by 7.6% in 2023. The Fed is raising interest rates to manage inflation, so we’ll see whether this succeeds or fails. Inflation is rising, and certain federal retirees and Social Security recipients may have a COLA rise of up to 8% in January 2023. Based on current trends, CPI will climb significantly in 2023. This year, federal employees considering retirement should know how the COLA is calculated for new retirees if they want to take advantage of a substantial 2023 hike.
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Bio:
I advocate for federal employees making the best benefit and retirement decisions for their unique situations. After a 25 year career in personal banking I saw a need for financial education and retirement planning for those approaching retirement. In recent years I have focused primarily on federal employee from both the CSRS & FERS systems. These federal employee face challenges in getting the information they need to make the best decisions for creating a successful retirement plan. I assist these individuals in navigating the retirement process.
