The cost of living has significantly increased over the past few years, driven by rising prices for essentials like housing, food, and energy. While inflation has eased from its 2022 peak, many households are still facing higher-than-normal expenses compared to pre-pandemic levels. Is there anything we can do about this?
-The Editors

🏦Social Security Watch:

2025 Social Security Payments: A Smaller-than-Expected Increase

Social Security recipients won’t see the big boost they were hoping for in their checks this year. According to the latest cost-of-living adjustment (COLA) projections, the increase won’t be as high as anticipated, which is disappointing news for many retirees who rely on these benefits to cover daily expenses. For those who depend on Social Security as their main source of income, even a modest adjustment can make a significant difference.

For over two decades, Gallup has been polling seniors, and their findings are clear—retirees heavily rely on Social Security. In fact, in 2024, 88% of retirees said these payments were a “major” or “minor” source of income, continuing a trend where reliance on Social Security has remained above 80% for more than 20 years. No wonder the upcoming COLA announcement on October 10th is eagerly anticipated, as it determines how much extra support seniors will get to help them keep up with rising costs.

Understanding the COLA Calculation

The COLA is an annual adjustment designed to protect the purchasing power of Social Security benefits. As prices for goods and services rise, the Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to measure inflation and adjust benefits accordingly. If the CPI-W increases from one year’s third quarter (July-September) to the next, Social Security payments are adjusted to reflect that change.

However, the CPI-W is a complex measure, with over six main spending categories and various subcategories. The expected COLA for 2025 has narrowed significantly based on inflation data from the past few months, with the final increase expected to be announced soon. Sound complex?

Projections for 2025: A Smaller Bump Ahead

While the average COLA over the past two decades has been around 2.6%, recent years saw a surge, with a 5.9% increase in 2022, 8.7% in 2023, and 3.2% in 2024. However, based on the latest data, analysts like Mary Johnson, a Social Security policy expert, now predict a 2.6% increase for 2025—the smallest adjustment in four years.

While this increase will add roughly $46 to the average monthly Social Security check (currently around $1,782), the news may feel underwhelming to those facing rising costs for essentials like housing, healthcare, and groceries. Nevertheless, this adjustment will still mark four consecutive years of increases—a streak not seen since 1997.

As we await the official announcement, it’s important to remember that even with smaller increases, every bit helps retirees keep pace with inflation. And while the 2025 COLA might not be the boost many hoped for, Social Security remains a vital lifeline for millions of Americans.

Read more about this here.

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🔍Poll

Inflation has been affecting all of us in different ways over the past year. From grocery bills to gas prices, the rising cost of living continues to put a strain on households. We’re curious—what’s been the biggest impact on your budget lately?

📚Study of the week:

Understanding the Recent Rise in Inflation (and Why Eggs Got So Expensive)

After many years of low and steady inflation, prices in the U.S. started to rise quickly in 2021. In February 2021, inflation was at 1.7%, but by June, it had jumped to over 5%. It continued to climb until it peaked at around 9% in June 2022.

So, what caused this? Several factors played a role. In response to the COVID-19 pandemic, the government launched programs like the CARES Act and the American Rescue Plan, which put about $5 trillion into the economy. This led to more people and businesses spending money, which increased demand. At the same time, businesses had trouble finding enough workers, which meant they had to raise wages, further driving up costs.

Rising prices for basic goods like food and fuel, as well as disruptions in supply chains, made things worse. For example, the cost of eggs shot up because feed prices increased, transportation was delayed, and there weren’t enough workers to process and deliver them. In the car industry, production slowed down due to a shortage of computer chips, causing car prices to skyrocket as fewer vehicles were available.

A big factor was the price of oil, which rose sharply after Russia invaded Ukraine in early 2022. This drove up the cost of gasoline and many other products. Oil prices jumped from less than $70 a barrel in mid-2021 to over $100 for much of 2022, which put pressure on many industries.

According to a study by economists Olivier Blanchard and Ben Bernanke, inflation initially surged due to rising energy and food prices, supply shortages, and the ripple effects of these factors. However, over time, the tight job market and rising wages became the key reasons why prices continued to stay high. Without changes in economic policy, inflation driven by wage growth is expected to continue.

Even though inflation has slowed since its peak in 2022, it remains an issue. Prices are still rising, just at a slower pace, which means everyday costs—like groceries, rent, and gas—are still higher than they were a few years ago. While egg prices have come down from their highest point, they’re still more expensive than before the pandemic. The tight labor market and wage increases continue to drive inflation, as businesses pass along higher labor costs to consumers. So, while inflation isn’t climbing as fast, many people are still feeling the pinch, and the fight to fully control it is ongoing.

Link to the study here.

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