Retirees’ income bump could put pressure on U.S. inflation

U.S. retirees may see bigger-than-usual income bumps next year, maintaining upward pressure on inflation that’s already proving more persistent than economists were expecting.

Next year’s Social Security costof-living adjustment — which is tied to the consumer price index — is forecast to come in at 6.1 percent, the biggest increase since 1983, according to the Senior Citizens League. That would put more money in the pockets of 65 million mostly older Americans.

Such increases would join outsize pay boosts at employers such as investor BlackRock Inc. and online giant Amazon.com Inc., along with the fastest rent gains in years, as factors that could spur inflation well into 2022.

“One data point doesn’t make a trend but when you have three in a row, at some point it does become significant,” said Aneta Markowska, chief economist at Jefferies. “We haven’t seen this strength, breadth and persistence of inflation since the 1980s.”

The annual Social Security adjustment is made to ensure payments to seniors keep up with the cost of living. It’s based on the Bureau of Labor Statistics’ index of prices paid by urban wage earners and clerical workers, which jumped in June by 6.1 percent from a year earlier, the fastest since 2008. The adjustment is finalized in October, and is based on cost increases for 2021 so it could still fluctuate.

Seniors would be getting about $60 billion more next year in payments than 2021, adding 0.3 percent to total disposable income, according to Markowska. That “sustains inflationary pressure on the margins,” she said.

Meanwhile, government employees are seeking a bigger boost to wages. That’s tied to a separate indicator called the Employment Cost Index, which is published quarterly and is actually increasing at a slower annual pace than last year amid a deceleration in state and local government pay.

The Biden administration proposed a 2.7 percent increase in government pay, but the American Federation of Government Employees, the largest federal union, and the National Treasury Employees Union are pushing for 3.2 percent, as proposed in a bill before Congress. Passage is uncertain, though.

“We want to make up some ground,” said Jacqueline Simon, policy director at AFGE. “It was a modest proposal when it was put together before the economy really started to recover. It just becomes more urgent when prices start to rise.”