Seniors had an important day on Aug. 14. The Bureau of Labor Statistics released updated information on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W measures the cost of a basket of goods and services, including things like food, housing, and healthcare.
For retirees who don't know, CPI-W data is extremely important because this data is used to determine if there will be a Social Security benefits increase, and if so, how much benefits will go up. Here's what retirees should know about July's data and why it will have such a big effect on their financial future.
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This data helps determine if retirees will get a raise
Retirees should pay close attention to the CPI-W numbers that were released in August because of how the Social Security COLA is calculated. COLA stands for cost-of-living adjustment. These adjustments happen automatically in most years to ensure that inflation does not reduce the buying power of Social Security over time.
Under Social Security's rules, CPI-W data from the third quarter of the year is compared with CPI-W data from the same time period during the prior year to see if there should be a raise, and to see how much it should be. Since July is in Q3, and it was July CPI-W data that was released on Aug. 14, this data point is the first one from this year that will be used when the Social Security benefits increase is calculated for 2025.
Retirees will need to wait for the August and September CPI-W data to be released, and then the official COLA will be announced in October. Still, while the July CPI-W number is only one of three metrics used to determine benefits increases, it's the first one from the relevant time period to be made available.
Plus, by comparing the July CPI-W numbers with those that came out earlier this year, it's possible to spot trends that shed more light on whether a big or small raise is coming.
What does the July CPI-W data mean for your COLA?
According to the Bureau of Labor Statistics, the July CPI-W numbers show that there was a 2.9% year-over-year price increase. This is down a bit from the 3% year-over-year increase that was reported in June and the 3.3% increase reported in May. It's actually the lowest reported annual increase since March 2021.
If the 2.9% number held and both August and September also showed the same year-over-year increase, then retirees would get a 2.9% raise in 2025. This would be the smallest benefits increase since 2021. Here's what the raises have looked like for the past few years:
- January 2021: 1.3%
- January 2022: 5.9%
- January 2023: 8.7%
- January 2024: 3.2%
However, we can see based on the data from May, June, and July that inflation seems to be trending downward (even though the May and June numbers aren't included in the formula, they can be helpful for showing changes in inflation rates over time). Since evidence suggests inflation is cooling, it's very likely the COLA will end up being smaller than 2.9% if August and September continue to show lower price increases.
The next CPI-W data release with August's numbers will be made available on Sept. 11 . Retirees should be on the lookout for this second data point to get a clearer idea of where their raise is trending. Finally, the September numbers will be made available on Oct. 10, so it won't be long until retirees finally get their answer about exactly how big their 2025 raise is going to be.
