The FRED Blog has discussed how economists use the consumer price index (CPI) to adjust the dollar value of retail sales, credit card debt, and state tax revenue to account for rising prices over time.

Today, we discuss how the Social Security Administration uses a version of the CPI to calculate cost of living adjustments, which affect the benefits recipients receive.

Another way to put it: how SSA uses CPI-W to calculate COLAs.

The FRED graph above shows the annual percent growth in both the CPI and the related CPI-W (from the US Bureau of Labor Statistics) from 2014 through 2024:

• Blue bars represent the all-items price inflation for all households living in cities and urban settings. This CPI inflation metric covers over 90% of the total population, regardless of employment status.
• Green bars represent the all-items price inflation for all urban wage earners and clerical workers,* CPI-W. Those households amount to approximately 30% of the total US population.

As we might expect, the CPI and CPI-W annual inflation rates are very similar. But it’s important to note that neither is consistently higher or lower than the other. Also, in times of higher inflation, the differences are more marked than in times of lower inflation. Different spending patterns among the populations covered by each price index can help explain that.

Since 1975, the dollar value of the Social Security’s general benefits has increased by the average July-to-September annual growth rate of the CPI-W. The amount of adjustment is announced in October. Last year, it was 2.5%. More details are available here.

*NOTE: Urban wage earners and clerical workers are defined as “households in which at least one of the members has been employed for 37 weeks or more during the previous 12 months in an eligible occupation and for which 50 percent or more of the household income must come from wage earnings associated with an eligible occupation.”

How this graph was created: Search FRED for and select “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Consumer Price Index for All Urban Wage Earners and Clerical Workers: All Items in U.S. City Average.” Be sure to click “Add data series.” Next, use the “Edit Lines” tab to select each of the two graph lines from the dropdown menu and change the units to “Percent Change from Year Ago” and modify the frequency to “Annual.” Lastly, use the “Format” tab to change the graph type to “Bar.”

Suggested by Nylah Martinez and Diego Mendez-Carbajo.