By MARY DEIBEL
Scripps Howard News Service
October 15, 2005
Social Security checks next year will see a 4.1 percent cost-of-living adjustment, reflecting the 1.2 percent rise in September of the Consumer Price Index, or CPI, the Social Security Administration announced Friday.
The jump in consumer prices was the largest monthly increase in the CPI since March 1980, with 90 percent of it due to energy-price spikes after Hurricanes Katrina and Rita temporarily disrupted Gulf Coast oil-and-gas production, the Labor Department reported.
The September CPI increase, led by a 12 percent leap in energy prices, was 4.7 percent higher than the index registered for the same time last year. Were the CPI to continue rising at September's pace over the next 11 months, it would jump 15.7 percent the next year- a level not seen since the 1979 Iranian revolution provoked a world oil crisis and recession.
Asked about the inflation spike, White House spokesman Scott McClellan said that President Bush has "confidence in the Federal Reserve when it comes to monetary policy and their ability to address any inflation concerns."
Federal Reserve policymakers have raised interest rates 11 times in 15 months to tamp down inflation. In minutes released this week of their September meeting, the officials said that temporary hurricane disruptions shouldn't distract from central-bank "perceptions of the fundamental strength and resilience of the economy and about its commitment to fostering price stability."
But University of Maryland forecaster Peter Morici contended that the Fed's concern with inflation may prove misplaced when the core inflation rate outside September's price rise remained tame at 0.1 percent for the fifth straight month.
"The reason for near-zero inflation outside the energy sector is quite simple: Consumers have no more money to spend," he said. "Energy prices will subside as Gulf oil, gas and refining come back online, and when energy prices fall, deflation - not inflation - may be the problem."
Meantime, energy costs are pinching retiree and worker pocketbooks.
Yearly Social Security benefit increases have risen automatically with consumer price increases over the July-September quarter since the first Arab oil embargo of 1973-74. The 4.1 percent benefit rise next year contrasts with a 2.7 percent cost-of-living adjustment in 2005 and is the largest increase since a 5.4 percent hike in 1991.
The average retired couple should see their monthly check go from $1,538 to $1,648, but for seniors enrolled in Medicare Part B insurance for doctor's visits and outpatient services, about a fourth of the inflation adjustment will be consumed by the $10.30-a-month increase in Medicare premiums deducted from Social Security checks.
Retirees and workers also can expect higher winter heating bills atop the 50 percent jump in gasoline prices in 2005. The government estimates that households that use natural gas will see a 48 percent hike in winter heating bills, with a 32 percent rise for heating oil.
"This cost-of-living adjustment is being eaten up by rising gasoline and heating costs, another double-digit increase in the monthly Medicare Part B premium and escalating health-care bills," said Bill Novelli, CEO of AARP. He said Social Security benefits would have been more than 25 percent lower the last decade without cost-of-living adjustments.
For the 80 percent of workers in blue-collar and non-management jobs, the September CPI increase meant a 1.2 percent decline in inflation-adjusted wages. Compared to September 2004, hourly earnings are off 2.4 percent and weekly pay 2.7 percent, the worst showing since the early 1990s, said economist Jared Bernstein of the Economic Policy Institute, a Washington think tank.
Analysts with Salary.com in Boston expect that energy prices will continue to absorb pay raises in coming months. Salary.com vice president Bill Coleman said that the average worker got a 3.7 percent raise this year, but that 3.3 percent of that paycheck - or $1,341 - is being pumped directly into the gas tank with more to follow in winter heating bills.
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