Gas pump hints at size of raise in 2005 COLA

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The cost of living -- the number of dollars and cents it takes you to put gas in the car, food on the table and clothes on your back -- is down. That ought to be good news for just about everybody.

But a lot of people, including retired government types, are not dancing in the street. The reason: If the pump price of gasoline continues to decline, 80 million Americans -- including several million former federal and military personnel -- will get smaller January cost-of-living adjustments than they have been expecting.

Cost-of-living-adjustments (COLAs) are automatic for retired civil servants and postal retirees, retired military personnel, and recipients of monthly Social Security checks and food stamps.

Unlike federal pay raises -- which are set by Congress and the White House -- the retiree COLAs are automatic. They are triggered by a yearly rise or fall in the rate of inflation in the third quarter -- the period covering July, August and September. The inflation rate is measured by the Bureau of Labor Statistics' Consumer Price Index (CPI). That has gone up every year since the COLA system was started, because of constantly rising living costs. In years of low inflation rates, the COLA has been small.

Gasoline prices are only a part of the overall CPI market basket, but they are an important part.

In addition to the fuel you use to get to work, school or the supermarket, lower gasoline and oil prices are reflected in reduced manufacturing and transportation costs in every industry, from plastics to chicken. Low inflation is a good thing for most people, but some retired feds don't like it, or don't understand its benefits when it means a lower-than-expected raise.

They say they are spending more regardless of what the government says, and they want the maximum raise each January.

Here is why some people are confused by the drop in living costs: When the June CPI came out in July, it indicated that retirees were due a 2.8 percent raise. But when the July CPI was released last week, it showed that the overall CPI -- which measures a variety of goods -- had dropped. As a result, the January COLA now stands at 2.6 percent.

There are still two months of calculations -- from August and September -- to go in the COLA countdown.

January pay raise