Prices Nudge Benefits Higher : Low Inflation Triggers 1.3% Social Security Rise
Consumer prices rose a moderate 0.3% in September, thereby triggering a Social Security benefit increase of 1.3% next year, the smallest such increase since benefits first were linked to the cost of living in 1975, the government said Thursday.
Inflation so far this year has been only 0.6%, thanks to the collapse in oil prices that stabilized this summer, the Labor Department said. But even with energy prices flat instead of falling, economists see inflation at a modest 3% to 3.5% annual rate for the next year or so.
When Social Security benefits first were linked to a version of the consumer price index in the inflationary 1970s, Congress decreed that the nation’s 3.7 million Social Security beneficiaries would get no increase if inflation fell below the then unheard-of rate of 3% a year--and for most of that period the annual increases averaged more than 6%, with a high of 14.3% in 1980.
But this year, faced with abnormally low inflation in a year of a 22.6% deflation in oil prices and declining prices for other commodities, Congress abolished the 3% floor in one of its last actions before adjourning. President Reagan made that repeal law when he signed the massive omnibus spending bill Tuesday.
Before seasonal adjustment, the consumer price index, from which the Labor Department computes monthly price changes, rose by 1.6 to 330.2 in September. The index is developed from a base of 100 in 1967, meaning that a selected cross section of consumer goods costing $100 in 1967 now costs $330.20.
Consumer prices in the Los Angeles-Long Beach-Anaheim area increased by a relatively steep 1.1% in September before seasonal adjustment, compared to an unadjusted 0.5% increase nationwide. In Los Angeles, prices over the last 12 months have increased by 3.3%, compared to 1.8% nationwide.
Meanwhile, in other favorable economic reports Thursday, the Commerce Department said that orders for durable goods, often a benchmark of future industrial activity, rebounded by an unexpectedly strong 4.9% in September. The department also reported that the personal income of Americans advanced a modest 0.3% for the month, even while spending on consumer goods, boosted by concessionary auto finance offers, surged by 1.6%.
The Commerce Department also reported that Americans’ personal incomes crept up 0.3% in September, a lackluster figure that followed a 0.2% August increase and matched a 0.3% July gain. Factory payrolls edged down $400 million in the month, while farm income rose $2.3 billion because of higher government subsidy payments. Disposable, or after-tax, income rose by 0.2% in September after an even smaller 0.1% August increase.
Reagan Sees Second Boom
President Reagan hailed the report on durable goods orders as proof that the economy is at last shaking off the sluggishness of the past few months. “Our four-year-long economic recovery looks like it is headed for a second boom,” he said during a campaign appearance in Milwaukee.
But private economists, while expressing continued confidence that inflation will remain low, cautioned that the strong goods orders report needs to be repeated for another month or two before it can be pronounced a trend. And they warned that the late-summer consumer buying binge is probably not sustainable into the final quarter of the year. On Wednesday the Commerce department reported that the economy grew by a solid but unspectacular 2.4% in the July-September quarter.
“If I could believe that goods orders are going to keep that pace, I would feel a whole lot better about the economy,” said Kathleen Cooper, chief economist at Security Pacific National Bank, Los Angeles. She also warned that “something will have to take the place” of the heavy consumer buying that has kept the economy afloat in the past few months, if growth is to continue in the current quarter.
If the strong durable orders report is a trend and not a momentary blip, she said, “perhaps we’ll get strong growth on the inventory side, and we may begin to get a turnaround on trade.” The nation’s merchandise trade deficit is heading for a record $170 billion this year, but economists, emboldened by a $5-billion smaller deficit in August than originally reported in July, are now looking for the turnaround long promised by the decline of the dollar against other currencies.
Little Inflationary Pressure
One trade-off of an improved trade picture brought about by a weaker dollar is that imports will cost more. But economists said that they see little reason to fear a return of 1970s-style inflation. “There is very little domestic inflationary pressure right now,” said David Wyss of Data Resources Inc., a Lexington, Mass., economic forecasting firm. “Wage increases are at their lowest level in the history of that (statistical) series, and given the disarray in OPEC (the Organization of Oil Exporting Countries), we don’t see much pressure there, either.”
An OPEC meeting that ended this week revealed serious splits in the international oil cartel, suggesting that production quotas that have barely stabilized oil prices since midsummer are fragile, at best. In any case, Wyss noted, if energy and the volatile food price measures had been removed from the index, consumer prices would have been increasing at a moderate 3% to 3.5% for the past three years.
Martin Mauro of Merrill Lynch likewise predicted a steady-as-you-go 3% to 3.5% inflation rate for the time being, so long as oil prices are stable instead of declining. He noted that the September index had a few anomalies, such as sharply higher apparel prices--up at a 7.8% annual clip in the third quarter, perhaps in part because of dollar-driven higher import prices--and an unexpected September decline in the cost of school fees and school supplies. “Apart from those funny things, taken together it means more low inflation,” Mauro said.
$6 Average Increase
Announcing the Social Security benefits increase effective next year, Commissioner Dorcas R. Hardy said that recipients would receive increases averaging $6 in their Jan. 2 checks. In the case of Supplementary Security Income beneficiaries, similar 1.3% increases will show up on checks mailed Dec. 31.
The increases mean that those now receiving a maximum benefit of $760 next year will receive $769; that the average retiree receiving $482 will get $488; that an elderly couple receiving $822 will receive $833. Early retirees under 65 will be able to earn $6,000 and retain all Social Security benefits, up from the present ceiling of $5,760, and persons over 65 can earn $8,160 in outside income and retain all benefits, up from $7,800. Retirees over 70 can retain all benefits, no matter how much outside income they earn.
The 7.15% payroll tax paid by all wage earners to finance the Social Security system remains unchanged, but the top wage base on which that tax is levied will rise from $42,000 to $43,800. The resulting $128.70 tax increase will affect some 8.5 million workers next year, Social Security spokesman James M. Brown said.
