Oil prices bury retiree allowance

By Tom Philpott: PNT columnist

It was higher oil prices last year that led to the largest annual cost-of-living adjustment (COLA) to federal entitlements since 1982. Good thing, too.

Lowered oil prices since then are almost certain to block any COLA this year for military retirees, federal civilian retirees, Social Security recipients, survivor benefit annuitants or disabled veterans.

The expected COLA “goose egg” will be the first since Congress began to adjust federal entitlements automatically using inflation rates as tracked by Bureau of Labor Statistics (BLS).

This year the cost of goods and services nationwide has fallen. No inflation means no COLA. What happened?

“Gas prices,” said Malik Crawford, an economist at BLS headquarters in Washington D.C.

The federal COLA is based each year on the average change in the cost of a market basket of goods and services from the third quarter (July through September) one year to the third quarter of the next year. Through July, the cost of living for U.S. wage earners has fallen by 2.7 percent.

“That’s huge,” said Crawford.

Though fuel prices are just one item given “small official weight” in the entire market basket tracked by BLS, Crawford said, “they have an outrageous impact” on prices overall because transportation costs affect the cost of everything else needing transport to market.

“It’s not like gas prices are great” now for consumers, said Crawford. “They are almost back up to $3 (a gallon). But they are still a full dollar below where they were last year. To go from $4 to $3 is a 25 percent fall. You go 25 percent down (in gas prices) and you’re down 2.7 percent (overall). … That’s how the math plays out.”

If prices climb sharply, is a COLA still possible? Unlikely, said Crawford. Price data are in already for most of August, he explained. Only a spectacular spike in September, which is highly unlikely, could trigger a COLA effective Dec. 1 and payable in January.

“Israel would literally have to attack Saudi Arabia for that to happen,” Crawford said. “And I mean like bomb them, not just threaten.”

The COLA last December was 5.8 percent, largest in nearly three decades. To get that, Crawford said, federal retirees and social security recipients “really lucked out. … Gas prices peaked in the third quarter last year.”

If no COLA is paid to Social Security recipients, said Dan Moraski, spokesman for the Social Security Administration, the law would protect many of them from an increase in Medicare Part B premiums in January.

He said a “hold harmless” provision in the Medicare law would exempt about 75 percent from paying higher Part B premiums in any year in which Social Security pay is unchanged. The 25 percent not eligible for premium protection are individuals with modified adjusted gross incomes above $85,000 or couples with adjusted gross incomes of $170,000.