Slight Rise in Prices Means 3.1% Hike in Social Security Benefits : Smallest Increase Since Checks Were Linked to Inflation

The nation’s 36.6 million Social Security beneficiaries will get a 3.1% benefit increase in January, the smallest increase since the checks were tied to the consumer price index a decade ago, the government said today.

The announcement was made in connection with the Labor Department’s report that consumer prices, held down by falling transportation costs, rose a scant 0.2% in September. The Social Security benefit increase matches the inflation rate from the third quarter of 1984 to the third quarter of this year.

If inflation had been any lower than 3%, there would have been no increase at all in 1986. Three percent is the minimum trigger.

The benefit rise means an extra $14 a month for the average retired worker, who now draws $464. It will also boost the maximum benefit for someone retiring this year at 65 by $22, from $717 to $739 a month.

The 3.1% benefit increase will go into effect Jan. 1. Benefits had increased 3.5% in each of the last two years.

$5.8 Billion in 1986

The higher benefits will cost Social Security’s trust funds $5.8 billion in 1986.

They will also trigger an automatic increase in the maximum amount of earnings that Social Security taxes. The ceiling will climb from $39,600 this year to $42,000, matching the 5.9% growth in average wages from 1983 to 1984. That means the maximum tax will top $3,000 for the first time. It will go from $2,791.80 to $3,003, an increase of $211.20.

The payroll tax is already scheduled to climb from 7.05% to 7.15% on Jan. 1 for workers and their employers.

The 3.7 million aged, blind or disabled recipients of Supplemental Security Income--a welfare program run by the Social Security Administration--also will get a 3.1% increase in their January checks. That will cost the Treasury $285 million in 1986.

However, many SSI recipients also draw Social Security, and as their Social Security checks go up, their SSI checks go down.

Changes in Indexing

Today’s price report also gave officials the information needed to index the federal income tax--to squeeze out the effects of inflation.

Slightly different versions of the Consumer Price Index compiled by the Labor Department are used to calculate the two changes.

The $1,040-per-person income tax exemption and the standard deductions--$2,390 for single people and $3,540 for couples filing joint returns--will be increased by 3.7% for taxes due on 1986 income.

Tax table brackets will be widened by the same percentage so that more income will be taxed at lower rates.

As for price activity last month, the transportation price calculation, which showed lower costs for used cars and auto financing as well as for gasoline, fell 0.2%, its fifth straight decline.

Gasoline Down, Food Up

Gasoline prices were off 0.8% for the second straight month.

Overall food costs rose 0.3%, the sharpest rise since a 0.5% rise last February. Food prices had risen a minuscule 0.1% in each of the preceding three months.

The department provided these additional details on consumer prices, all adjusted for normal seasonal variations:

--Housing costs rose 0.2%.

--Medical care costs rose 0.5%, the same as in the last two months.

--Clothing prices were up 0.5%, up from 0.3%.

--Entertainment costs gained 0.5% after declining 0.1% in August.

If last month’s 0.2% increase held steady for 12 straight months, the yearly advance would be 2.3%. The annual rate supplied by the department is based on a more precise calculation of price activity than the rounded percentage contained in the monthly CPI report.