The latest inflation report, released on January 15, 2025, shows that December saw a 0.4% increase in the consumer price index (CPI). This was above the forecasted 0.3% rise. The core CPI, which excludes food and energy prices, increased by 0.2%.
This was slightly below expectations. Over the past 12 months, the CPI has risen to 2.9%. This is up from 2.7% the previous month.
The core CPI has decreased to 3.2% from 3.3%. December marked the third consecutive month of gains in the 12-month consumer price index. This was driven primarily by increases in household staples such as food and gas.
Despite a larger-than-expected increase in hiring in November and December and a declining unemployment rate of 4.1%, sustained inflation has stalled discussions of further interest rate cuts. The all-items index rose 2.9% for the 12 months ending in December. This is up from 2.7% in November.
The all-items less food and energy index increased by 3.2% over the past year. The energy index decreased by 0.5%. The food index saw an annual increase of 2.5%.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased by 2.8% over the last 12 months, reaching an index level of 309.067. The CPI-W remained unchanged in December 2024. Starting this month, there was a 2.0% cost-of-living adjustment (COLA) for annuities under the Civil Service Retirement System (CSRS), military retirement annuities, and Social Security benefits.
Federal Employees Retirement System (FERS) annuities also saw a 2.0% COLA, effective January 2025. The Senior Citizens League projects a 2.5% COLA for 2026.
Projected decline in COLA impacts seniors
Historical data shows that predicting the annual COLA is complex due to numerous variables that can change unexpectedly. A formula determines the COLA amount, which is announced in October. The annual COLA differs from the General Schedule (GS) pay raise.
The GS pay raise amount is determined through a complex political process and includes considerations such as promotions and bonus payments. The actual salary increases for GS employees can also vary based on locality adjustments, GS grade, and step within the system. TSCL’s COLA model predicts that the 2026 Cost-of-Living Adjustment (COLA) for Social Security will be 2.1%.
This decline in inflation points to the lowest COLA since the onset of the COVID-19 pandemic. In comparison, the COLA for 2025 was 2.5%, a decrease from 3.2% in 2024 and significantly lower than the 8.7% increase in 2023. This trend of decreasing COLAs has financial implications for American seniors, with many relying heavily on Social Security.
According to TSCL survey data, 67% of seniors depend on Social Security for more than half of their income. While lower inflation is generally positive, it does not mean that prices are decreasing, but rather that they are rising more slowly. This gradual rise still places many seniors at risk of facing a budget shortfall.
According to TSCL’s 2024 Senior Survey, 62% of older Americans worry that their retirement income will not cover essentials like groceries and medical bills. The incoming administration’s proposal to eliminate taxes on Social Security benefits could offer significant financial relief. TSCL estimates that this could save a typical senior around $3,000 annually, representing approximately 5% of their budget.
Shannon Benton, TSCL Executive Director, emphasized the urgency for congressional action: “Inflation slowing down doesn’t mean that seniors are catching up. It’s essential that Congress acts quickly to fix years of sub-par COLAs and help give seniors the quality of life they deserve.”
TSCL utilizes a statistical model incorporating the Consumer Price Index, Federal Reserve interest rates, and the national unemployment rate to predict COLAs. The model is updated monthly throughout the year to reflect changing economic conditions.
In January 2025, a new version of the model (v1.2) was released, improving prediction accuracy by adjusting data processing to the federal fiscal year. Shannon Benton concluded, “The Trump Administration’s plan to eliminate taxes on Social Security benefits would make a massive difference. The current thresholds were set back in the 1980s and have not been adjusted for inflation.”
