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2011 COLA a NO-GO?
Old 08-29-2009, 01:06 PM   #1
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2011 COLA a NO-GO?

Interesting part of an email that I got from MOAA indicates that COLA for 2011 may not be as automatic as some assumed.

Quote:
COLA in the Hole for 2011, Too?
Last week, we officially threw in the towel on any prospect for a 2010 COLA for Social Security, military/federal retired pay, SBP, and VA disability compensation recipients.
With inflation 2.3% in the hole through the first 10 months of the fiscal year, inflation would have to rise more than 4.6% in the next two months (the COLA is based on the July/August/September average) for there to be a 2010 COLA, and thatís not going to happen.
But this is the first time the nearly 50-year history of COLAs that thereís been negative inflation for the full year, and that sent us back to research how the COLA law deals with that event.
We know there wonít be a cut in retired pay, Social Security, etc. There just won't be a COLA.
But how about 2011? Does the "COLA clock" reset at zero, or do we start the new fiscal year in the hole by whatever negative number the CPI represents at the end of September?
The short answer is that it's a cumulative calculation, and we will, in fact, start FY2010 in the "COLA hole."
The law says the COLA is calculated based on CPI growth from the third quarter average to the next year's third quarter average. However, it specifies that the starting point for the calculation is the third quarter of the year prior to "the most recent adjustment..." So if there's no COLA in 2010, then the starting point for the 2011 COLA calculation still remains the third quarter of 2008.
So inflation will have to rise at least a couple of percentage points during the next fiscal year before the 2011 COLA clock will even start.
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Old 08-29-2009, 01:34 PM   #2
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I find it interesting that none of the newspapers mention that if there is deflation, your dollars buy you more and since there is no negative adjustment, your payment is worth more, a de facto COLA adjustment
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Old 08-29-2009, 01:42 PM   #3
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Originally Posted by bssc View Post
I find it interesting that none of the newspapers mention that if there is deflation, your dollars buy you more and since there is no negative adjustment, your payment is worth more, a de facto COLA adjustment
Well, yeah, this is worth mentioning with the caveat that this means deflation according to the CPI and not according to most household budgets.

For bigger ticket discretionary items there may well be deflation, but I don't think most people are feeling deflation overall. Other than the drop in gas prices because of a short-term speculation spike last year, not much in the way of essentials are doing anything but going up in price.
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Old 08-29-2009, 02:46 PM   #4
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Quote:
Originally Posted by ziggy29 View Post
Well, yeah, this is worth mentioning with the caveat that this means deflation according to the CPI and not according to most household budgets.

For bigger ticket discretionary items there may well be deflation, but I don't think most people are feeling deflation overall. Other than the drop in gas prices because of a short-term speculation spike last year, not much in the way of essentials are doing anything but going up in price.
Well, things to keep in mind it that while raising prices, manufacturers blamed higher gas prices since transportation is pretty much tied to the price of crude. So, in theory, the prices should fall for everything as gas prices drop.

Secondly, how do you factor into effect quality? For example with laptops, you are paying less today for a machine that ten years ago was significantly less powerful. Should that be factored in, since it isn't?

Thirdly, I forget how big ticket items are factored in but if you buy a refrigerator every ten years, then you should be saving a tenth of the price every year to make that purchase. Or some amount a year of your income does go to big ticket items.
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Old 08-29-2009, 03:02 PM   #5
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Originally Posted by bssc View Post
Secondly, how do you factor into effect quality? For example with laptops, you are paying less today for a machine that ten years ago was significantly less powerful. Should that be factored in, since it isn't?
It is not clear to me what you are talking about. However, quality is factored into CPI calculation; it is called CPI hedonic adjustment.

Ha
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Old 08-29-2009, 04:07 PM   #6
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Here is the CPI data from the Bureau of Labor Statistics since Jan. 2008 (gosh I love "teh internets").
Inflation.gif
Here is the website:
Consumer Price Index
and here is the spreadsheet (with data back to 1999)
BLS CPI reduced.xls
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