by Calculated Risk on 8/14/2024 01:37:00 PM
Wednesday, August 14, 2024
Early Look at 2025 Cost-Of-Living Adjustments and Maximum Contribution Base
The BLS reported this morning:
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 2.9 percent over the last 12 months to an index level of 308.501 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U and is not seasonally adjusted (NSA).
• In 2023, the Q3 average of CPI-W was 301.236.
The 2023 Q3 average was the highest Q3 average, so we only have to compare Q3 this year to last year.
This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.
Note: The year labeled is for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).
CPI-W was up 2.9% year-over-year in July, and although this is early - we need the data for July, August and September - my early guess is COLA will probably be around 2.4% this year, the smallest increase since 1.3% in 2021.
Contribution and Benefit Base
The contribution base will be adjusted using the National Average Wage Index. This is based on a one-year lag. The National Average Wage Index is not available for 2023 yet, although we know wages increased solidly in 2023. If wages increased 5% in 2023, then the contribution base next year will increase to around $177,000 in 2025, from the current $168,600.
Remember - this is an early look. What matters is average CPI-W, NSA, for all three months in Q3 (July, August and September).