The latest inflation figures from the United States government are cause for concern, particularly for senior citizens. Social Security beneficiaries will only receive a 3.2% cost-of-living adjustment to their monthly checks starting in January, according to the program’s administrators. This means that retired workers, who receive an average monthly check of $1,840, will only see an extra $59.
Rising Prices: A Cause for Concern
Unfortunately, it appears that the actual prices consumers will face at the store, barbershop, and gas pump next year are likely to rise by even more than this adjustment—possibly by a significant margin.
In September, the headline inflation figure stood at 3.7%. However, this number looks back at prices from a year ago. What about today’s prices? Well, the latest figures show that consumer prices rose by 0.4% between August and September, translating to an annual rate of 4.9%. Since June, prices have gone up by 1.1%, representing an annual rate of 4.9%.
Alarming Inflation Rates
The inflation rate that Federal Reserve Chairman Jay Powell pays close attention to is even more troubling. Prices for services, excluding rent, such as haircuts and airline tickets, are now rising at an astonishing annual rate of 7.4%, according to the latest data. This is three times the rate seen just a few months ago.
Struggles to Tame Inflation
These numbers show that Powell’s efforts to combat inflation have yielded minimal success so far. Despite raising interest rates for the past 18 months, from 0% to over 5%, inflation continues to persist like the unkillable monster in John Carpenter’s cult horror movie.
Perhaps this outcome shouldn’t come as a surprise considering the massive deficits being run by the government. As of now, the fiscal year’s deficit stands at $1.5 trillion and is still growing.
The Message of the Inflation Numbers
If the latest inflation figures don’t indicate that inflation will continue to rise for a longer period of time, then what do they signify? While Wall Street remains optimistic, claiming that inflation is proving to be “sticky,” some economists are considering the possibility of another interest rate hike by the Federal Reserve.
No matter how you look at it, the rising inflation numbers are cause for concern, especially for senior citizens relying on Social Security benefits. The challenge remains in finding effective solutions to curb these upward trends.
The Impact of Latest Inflation Data on Seniors and the Markets
The latest news surrounding inflation does not bode well for seniors, Americans under 65, the administration, or even the bond and stock markets.
Market Response to Inflation Data
The market’s reaction to the inflation data is quite telling. Fed futures have increased the likelihood of a further quarter-point rate hike by the Federal Reserve this fall. Perhaps more alarming is the fact that the markets now perceive it as a 50-50 chance whether Powell will be able to cut short-term rates at all before the presidential election next year.
Both Biden and the administration were hoping to leave the inflation crisis behind them well before the upcoming election. However, the latest data may spell more political trouble for them. It comes as no surprise that betting markets now view the next election as a tossup between Biden and an unnamed candidate.
Social Security Cost-of-Living Adjustments (COLAs)
Every year in September, cost-of-living adjustments (COLAs) for Social Security beneficiaries are announced alongside the September inflation figures. While these adjustments are meant to offset the rise in prices for the following year, they are based on the price increase from the summer of 2022 to the summer of 2023. This means they are always one year behind current conditions.
Impact on Social Security Administration and Seniors
Higher inflation may benefit the Social Security Administration and Uncle Sam. Wages and FICA taxes typically increase in line with inflation immediately. On the other hand, Social Security benefits only receive their inflation adjustment a year later. This cash flow advantage is significant. Moreover, higher inflation quietly pushes more seniors into tax brackets where their Social Security benefits are taxable. What was once applicable only to the wealthy now affects half of all seniors and will eventually impact everyone.