COLA 2.0 - How far that Social Security Cost of Living Adjustment will really go:
Bottom Line: The improved news for those on fixed income relying on Social Security payments is the improved 2% COLA for next year. The increase is the largest since 2011. Given that COLA is based on inflation however, it's important to see how the COLA compares to the actual rate of inflation to see if Social Security is really keeping pace. There are multiple measures of inflation but only one of them is the real inflation rate. It's the CPI or Consumer Price Index. It's the all-in monthly change in the cost of goods. So where does it stand over the past year? Well, let's say that the COLA doesn't quite cut it.
There are two measures of CPI. One doesn't include food and energy prices and the other does. Most economists pay the closest attention at the non-food and energy number because it's not as volatile and provides smoother month-to-month trends. That figure was 1.7%. Were that the actual inflation rate, Social Security recipients would be set to make out a little better than not with the COLA. That's not the case however. In my opinion the only number that matters is the full CPI with food and energy. I've yet to meet a living person that didn't consume food or energy (and I don't expect that'll change over the next year). So, what's the real inflation rate with everything included? 2.3%. Based on what the same stuff actually costs - Social Security recipients are actually coming up ever-so-slightly behind on the COLA for 2018 payments.