How the Consumer Price Index Relates to Disability Payments

Individuals who are currently receiving Social Security disability benefits or who expect to receive them should get familiar with the Consumer Price Index (CPI) because it affects the amount of money they will receive.

What Is the Consumer Price Index?

The CPI is an economic indicator produced by the Bureau of Labor Statistics (BLS). Figures are developed each month by assessing the changes in prices of products and services for urban consumers. These assessments includes the costs of items such as sewer fees, food and fuel. Each category of costs, or sub-index, is then weighted according to its importance and used to calculate the CPI.

There are two Consumer Price Indexes. The CPI-U is an index based on the purchasing power of all urban consumers. The CPI-W is an index based on the purchasing power of wage earners and clerical workers.

How the Consumer Price Index Relates to Disability

The Social Security Administration (SSA) uses the CPI-W to measure the effects of inflation on the benefits that they provide. When there is inflation, the costs of living rise and a person's disability income is able to purchase less than it previously did. On an annual basis, the SSA uses the CPI-W to assess whether or not inflation has occurred. If so, the SSA is obligated to increase benefits to accommodate for this. Such an increase is referred to as a cost of living adjustment (COLA).

Individuals often question why in some years their disability benefits do not change. The reason is that the Consumer Price Index does not show inflation and the SSA has no basis to increase benefits. It is possible for the CPI-W to report deflation, but this will not negatively impact recipients because the SSA does not decrease benefits for this reason.