ECONOMYOCTOBER 20, 2011.Prices Rise 0.3%, Prompting Boost in Government Benefits
By DAMIAN PALETTA and SARA MURRAY
Consumer prices rose 0.3% in September, the Labor Department said Wednesday, and were up 3.9% year over year. The 12-month increase—the largest since September 2008—stemmed from a jump in gasoline prices related to the Arab Spring. Higher prices at the pump earlier this year taxed households hit by high unemployment and lower home values.
Social Security recipients will see their first raise in their checks since 2009 next year, as inflation accelerated this year. Phil Izzo has details on Lunch Break. Plus, inflation remains tame and what percentage are you?
.Excluding food and energy, prices rose 0.1% last month and were up 2% for the 12 months.
The climb in prices means millions of Americans who rely on government programs such as Social Security will receive their first cost-of-living increase since 2009. It also will raise taxes on close to 10 million of the 161 million workers who pay Social Security taxes. That's because in 2012, Americans will have to pay the payroll tax on their first $110,100 in earnings, up from the $106,800 in earnings in 2011.
Nearly 55 million Social Security beneficiaries will see their checks rise by 3.6% beginning in January, the Social Security Administration said. For the more than eight million recipients of Supplemental Security Income—assistance for the poor and disabled—the increase will start in December.
The 3.6% increase could be partially or completely offset by a bump in the premiums that seniors pay for Medicare Part B benefits, which have been held flat for many beneficiaries because of low inflation in the last two years. For many retired Americans, Social Security benefits come in around $1,000 a month, and Medicare premiums can eat up 10% of that or more.
The Centers for Medicare & Medicaid Services could announce their premiums and copayments for 2012 as soon as next week. Because Medicare premiums are deducted directly from Social Security checks, many Americans may never see an increase.
"It's very difficult to make your ends meet," said June Engelhardt, 79, who volunteers at a senior center in Toledo, Ohio. She said that without Social Security she would be "out on the street. I live in a mobile home and my rent is $225 a month. Otherwise, I'm squeaking through."
Social Security checks are vital to many American households: 20.3 million more people would have fallen below the government's official poverty line last year without the payments, according the Census Bureau.
"It's a joke," said Pete Morelli, 80, of his cost-of-living increase being offset by the Medicare increase. "They are going to give us a little extra money and then raise our insurances. That's ridiculous." Mr. Morelli moved to Williamsburg, Va., several years ago after retiring as a mechanic and school bus driver in New York.
Others affected by the cost-of-living increase include roughly 2.3 million retired federal civil servants, and close to two million more retired members of the military. It could also draw attention on Capitol Hill, as lawmakers look for ways to trim the budget.
Earlier this year, the White House and congressional Republicans debated whether to shift toward a more-conservative inflation measurement that would likely have cost-of-living adjustments move up much more slowly. Budget forecasters have projected that moving to this formula could save roughly $300 billion over 10 years.
While those relying on programs such as Social Security may see an income boost, most other Americans are coping with falling incomes and rising prices. Higher prices eat into consumers' purchasing power, which plays a prominent role in economic recovery because it accounts for 70% of economic activity
