The Senior Citizens League has made an early prediction that the Social Security increase for next year may fall back to as low as 3% after beneficiaries enjoy a truly historic 8.7% cost-of-living adjustment “raise” this year.
Mary Johnson, the Social Security and Medicare policy analyst at the Senior Citizens League, said in a CBS News that the estimate is based on the 12-month average rate for the Consumer Price Index for Urban Wage Earners and Clerical Workers, a basket of goods and services typically purchased by workers.
She pointed out that even when inflation rose month over month, as it did in January, the 12-month average has been falling. Although still well over the Federal Reserve’s goal rate of 2% yearly, price rises are currently slowing down, even if inflation patterns are subject to alter.
This is a representation photo showing fingers holding a Social Security card. Experts say that the Social Security increase next year may be lower. (Photo by Getty Images/iStockPhoto)
Social Security Increase: Lower Adjustments Next Year?
While the 2024 Social Security COLA has yet to be formally decided and published, it is becoming increasingly likely that there won’t be any Social Security increase in 2024.
The rising likelihood of a recession is a significant factor. According to the Motley Fool, a recession is anticipated to cause a sharp decline in the U.S. inflation rate in the second half of 2023.
The COLA computation for Social Security is based on monthly CPI-W data from the third quarter (July-September). The COLA for Social Security recipients for the next year will be affected if the inflation rate considerably declines during that time.
Even before the second-largest bank failure in American history, which occurred last Friday, many economists were predicting a recession in 2023—a significant, widespread, and protracted decline in economic activity typically defined as two consecutive quarters of negative economic growth. This factor could also hamper the Social Security increase for next year.
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Banks Reducing Lending Activity
In a blog post published on Monday, Commonwealth Financial Network’s Brad McMillan said that banks generally are likely to reduce their lending activity and risk until they “get their homes in order,” which would inevitably hinder economic growth and depress the markets.
In some ways, this is positive (it is what the Fed has been striving for), but it increases the likelihood of a recession—possibly in the near future.
When the Social Security COLA for the next year is established, it is still conceivable that the brunt of a recession might skip the third quarter. Still, all indications are that the Social Security increase in 2024 would be far less.
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