The withering up of the federal stimulus checks has pulled back low and moderate-income families into the clutches of starvation as record inflation hits the US economy. Prices of gasoline have doubled in 2 years and essential items, house rent, and utilities have seen a similar rise in prices. In the absence of further stimulus checks, the federal government is set to go for a record increase in income adjustment for Social Security beneficiaries.
The federal administration applies the Cost Of Living Adjustment (COLA) to help beneficiaries keep up with the cost of living. This increase in monthly income is applied to salaries, wages, and benefits. These include union agreements, retiree benefits, and executive contracts.
The cost of goods and services, including essential ones such as food, medical care, and shelter, sees a modest rise every year during normal times. But the pandemic and the accompanying economic downturn have led to inflation rates that have broken a 4-decade record.
Cost Of Living Adjustment (COLA) Only Federal Assistance In Absence Of Stimulus Check
There has to be a matching rise in income so that people can afford the cost of living. The successive stimulus checks followed by the extended unemployment benefits and the Child Tax Credit stimulus check shielded low and moderate-income individuals and families from the worst effect of the pandemic.
The federal aid dried up after 2021. To make matters worse, inflation began rising in the last quarter of 2021 and reached record levels of above 8.6% in the first quarter of 2022. It has stayed above 8% consistently, leading to a massive rise in the price of essentials and gasoline. While states are moving in to support their residents, the federal administration is set to make the biggest ever cost of living adjustment to help social security recipients and other beneficiaries keep up with the prices.
The Social Security Administration’s (SSA) cost of living adjustment for 2021 was 1.3% and 5.9% for 2022.
But retirees and other beneficiaries with this fixed source of income are among the worst affected facing sticker shock everywhere from the gas pump to the grocery store. But those feeling the pinch of higher prices can take heart from the news that a much bigger Social Security cost-of-living adjustment awaits them next year.
COLA To Be Around 8.6%: Final Figure Depends On Inflation Rate
The Senior Citizens League has released a preliminary estimate on the COLA for 2023. The non-partisan senior group has said that it could be as high as 8.6% based on the latest data released by the Consumer Price Index. The Social Security COLA, 2022 was 5.9% in January, which again is the highest bump in the past 4 decades.
Data shows that the Consumer Price Index for the past 12 months has shown an increase of 7.9%, for all Urban Consumers, rising to 292.296. The Social Security COLA is calculated based on a different measure, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which has reported an even greater increase of 8.6% for the past 12 months.
The CPI-W is a more specialized measure of retail prices that affect urban clerical workers and wage earners who earn on an hourly basis, as revealed by the US Bureau of Labor Statistics.
The high prices, especially of oil, have revised the estimate of CPI-W upwards to 7.6%. The CPI-W puts more weight on clothing, food, transportation, and various other services and goods compared to the Urban Consumers measure.
As inflation continues to stay at a record high consistently, the final COLA figure will depend on this movement of the inflation rate. The Fed is expected to jack up the interest rate to arrest the runaway inflation rate. It is expected to curb rising prices to some extent. But too high a push could push the nation into another nation similar to the one seen in 2009, or even worse, into a depression.
Linking the Stimulus Check To Inflation
While advocates for the stimulus check have been backing another federal stimulus check, the opposition and a section of economists accepts as true that stimulus-impelled consumer spending is the reason the inflation rate in the US is at a 4-decade high.
This section believes that the pandemic and related issues, or American policy choices, are to be held culpable for the swift rise in the inflation rate. White House representatives contend that the present inflation is a worldwide phenomenon and primarily triggered by supply chain problems which witnessed a total collapse post the pandemic and were aggravated by the war in Europe.
But economists are certain that the pandemic stimulus, especially the third stimulus check, or the Economic Impact Payment, under the American Rescue Plan Act, is mostly to be blamed for the upward movement in prices of gasoline, other essential goods, and rent and utilities.
The White House has been constantly blaming global factors for the high inflation rate, including the shutdown of factories across Asia and the high pressures on the shipping routes that have jacked up global prices during the pandemic.
They have pointed to the high inflation in the European Union where essential prices are also growing at record levels, to fortify their contention that the entire world economy is in the grip of a recession and the stimulus check is not the source of, or part of, the problem.
But economists say that while these supply chain disruptions and the shutdown contributed to inflation, the decision by the US to pour around $5T into the economy through stimulus checks and other economic support to various sectors has caused consumers to overspend and has aggravated an already fragile economic situation.
Workers Forced Into Double Jobs In Absence Of Stimulus Checks
Despite the hike in wages which in some cases are as high as 33%, workers struggle to cover basic expenses. They have been forced into second jobs to meet the rising cost of groceries, rent, and gas. Others have revealed that their budget loans would be further strained once the student loan repayments are resumed.
The labor bureau figures reveal that real wages saw a rise between December 2019 and December 2021 in all but 3 industries, manufacturing, construction, and mining-logging. They add up to just over 14% of the total workers. Workers in all other sectors have higher real wages than they did a couple of years ago. But in the absence of a stimulus check, they are forced to look into giving up the basics of life to sustain their family.
