More U.S. inflation pressure to come from seniors’ income boost
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 cost-of-living adjustment — which is tied to the consumer price index — is forecast to come in at
6.1%, 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 economy is zooming ahead as the country reopens and demand outstrips supply. The U.S. consumer price index jumped 5.4% in June, the most since 2008, amid a rise in hotels, used cars and airfares.
While the Federal Reserve and the Biden administration downplay price increases as transitory and limited to certain sectors such as rental cars, sustained gains for income and contract wages could keep price gains going.
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% 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% 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% 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%, 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.”