Social Security To Rise 2.4%

Inflation at the consumer level jumped 0.4 percent in September, the biggest increase in five months, reflecting sharply higher prices for gasoline, cigarettes and clothing.

The Labor Department said last month's increase in the
Consumer Price Index, the government's most closely watched inflation gauge, followed a 0.3 percent rise in September.

So far this year, consumer prices have been rising at an annual rate of 2.8 percent, sharply higher than the tiny 1.6 percent increase in 1998.

The faster pace of inflation will mean a bigger cost of living increase for the 44.2 million Americans getting Social Security checks, who will see their benefits rise by 2.4 percent starting in January, nearly double the 1.3 percent increase they received this year.

But rising worries about inflation have set off alarm bells on Wall Street with investors concerned that the Federal Reserve will be forced to raise interest rates again at their next meeting on Nov. 16. The Fed has already boosted borrowing costs twice this year in an effort to keep the economy from overheating.

"The cost of living adjustment is a centrally important feature of Social Security that insures that beneficiaries, no matter how long they live, will retain their purchasing power as costs rise," said Apfel.

Since 1975, the adjustment has been automatic, requiring no vote by Congress. It is calculated based on changes in the Consumer Price Index - the government's inflation yardstick - from the third quarter of one year to the corresponding quarter of the next.

Because of low inflation, the yearly benefit boosts have been below 3 percent since 1994. The 1999 increase matched a record low of 1.3 percent set in 1987 - not counting six months in 1983 when the update was skipped to help Social Security out of a cash crunch.

In recent months, however, consumer prices have begun to climb, led by an increase in energy costs. As a result, the 2000 cost-of-living raise will be the highest since 1997, when it was 2.9 percent.

Compared with most years in previous decades, though, the 2000 COLA is still relatively low. Double-digit inflation in the late 1970s, for example, drove the cost-of-living increase up to a record 14.3 percent in 1980.

Social Security also announced Tuesday that for 148 million working Americans, the maximum annual earnings subject to Social Security taxes next year will rise to $76,200 from $72,600. That limit, along with the Social Security tax rate of 6.2 percent, is set by law.

Thus, the maximum Social Security tax paid by workers in 2000 will be $4,724, a figure employers are required to match.

Many senior citizens say they depend heavily on the few extra dollars a month that Social Security's annual cost-of-living raises bring.

However, a panel of prominent economists told Congress in 1996 that the governmenmay be spending unnecessary billions on COLAs for Social Security and other benefit programs because the CPI could be overstating inflation by more than a percentage point.