(CNN) — Some 60 million retirees and other Social Security recipients just some lousy news on Thursday.
For the first time in five years, they will get no annual raise in their Social Security benefits in 2016.
The reason? A decline in inflation caused by falling gas prices.
The amount of money that Social Security pays out is adjusted each year to take into account the rate of inflation. This is known as the cost of living adjustment, or COLA.
The inflation measure used by the Social Security Administration was down 0.3% for the 12 months that ended in August — largely due to a 23% drop in gas prices. Thursday’s September reading is likely to show similar numbers. (The COLA is set every October based on the September inflation report.)
In 2015, Social Security benefits rose 1.7%, and they’ve climbed by less than 2% for three years in a row.
But if prices don’t increase, Social Security benefits stay flat. That’s what happened in 2010 and 2011. And it’s likely to happen again in 2016.
“It’s very likely the COLA will be zero, given the way the numbers are now,” said Polina Vlasenko, senior research fellow at the American Institute for Economic Research.
The problem for seniors is that the way the government measures inflation simply doesn’t reflect how people on Social Security spend.
Seniors don’t benefit as much from lower gas prices as the average American worker because most are no longer driving to and from work. Medical costs have also increased faster than overall inflation, and a greater percentage of seniors’ spending is on health care.
A study by the Senior Citizens League found that Social Security benefits have lost about 22% of their buying power since 2000, despite the benefit increases due to the COLA.
The typical retiree’s benefit is about $1,300 a month, so last year’s increase meant a $22 a month increase.
The price of gasoline has fallen dramatically primarily because oil has plummeted. Basically, the world has too much oil. U.S. oil production has surged and OPEC, which normally cuts production when prices sink, continues to pump record amounts. The fact that the West may soon have access to Iranian oil because of the nuclear sanctions deal has also helped drive prices lower.
Demand for oil has also been sluggish. Some developed economies in Europe and Asia are barely growing, and emerging markets in Latin America are stumbling. Growth in China, the world’s second largest economy, has slowed dramatically.
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