Posted on Friday, 29th April 2022 by

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We can expect another significant COLA increase in 2023 if inflation continues on its current path or if we move to what economists call stagflation. According to the Senior Citizens League, the 2023 COLA could be as high as 8.9%; the largest increase since 1981 when it was 11.2%; in 1980 it was 14.3%!

There are many variables in the annual COLA calculation and the final number can change dramatically before the announcement this October.

Stagflation takes hold when the inflation rate is high, economic growth rate slows, and unemployment is high. Most actions that government takes to lower inflation raises unemployment, and policies designed to decrease unemployment often spur inflation. We aren’t there yet, but many economists fear this scenario that is initiated by a supply shock and poor economic policies.

A supply shock occurs when there is a sudden increase or decrease in the supply of a commodity or service, such as the significant increases at the gas pump. The higher prices raise production costs, profits fall, and the economy slows. Many products and materials are suffering the same plight. Have you tried to buy a new car lately?>

The situation we find ourselves in today was compounded by pandemic deficit spending that dramatically increased the money supply driving inflation even higher.

Last year, my article on the projected 2022 COLA quoted Kiplinger Magazine’s projection of 3%. I anticipated a much higher rate then and believe inflation could exceed our expectations again this year. Prices continue increasing across all sectors unabated. A measure of just how things are going will be the Treasury’s I-Bond interest rate announcement due next month. It should be north of 9%!

Once inflation takes hold the economy spins out of control; things don’t revert back to the mean afterwards, when it settles down.

The median cost of a home in 1980 unadjusted for inflation, according to the US Census Bureau, was $47,200 dollars. My wife and I purchased a new 3 bedroom, two bath Ryan ranch home in 1979 for $47,750! The median household income was approximately $17,000 dollars and a gallon of gas was $1.25! Today, the median cost of a home now exceeds $350,500 dollars.

Hold on to your hats again this year, we have quite a ride ahead.

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Disclaimer: The information provided may not cover all aspect of unique or special circumstances. Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. Consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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