On Monday, stock markets kept up their positive momentum from last week, as investors were willing to look on the bright side of all the economic uncertainties facing the world right now. As we've seen on many occasions in the past, the Nasdaq Composite (^IXIC 0.34%) led the way higher, but the S&P 500 (^GSPC 0.35%) also managed to climb more than 1%, and even the lagging Dow Jones Industrial Average (^DJI 0.13%) put in a solid performance.
|
Index |
Daily Percentage Change |
Daily Point Change |
|---|---|---|
|
Dow |
+0.71% |
+230 |
|
S&P 500 |
+1.06% |
+43 |
|
Nasdaq |
+1.27% |
+154 |
Data source: Yahoo! Finance.
The bear market in stocks in 2022 has taken its toll on everyone's finances, but older Americans who have invested all their lives have seen the value of their retirement nest eggs fall sharply this year. At the same time, expenses have gone up dramatically due to inflation, affecting retirees regardless of how much they have in savings.
Investors across the market are looking forward to the Tuesday release of the latest Consumer Price Index reading for August, as it will give another indicator of whether inflation has truly peaked. Yet for those receiving Social Security, the report has added significance, as you'll see below.
Inflation expectations come down
Nearly everyone expects the monthly inflation figures to show flat to slightly downward prices for August. Forecasts among economists are calling for a 0.1% drop in the CPI compared to July's figures.
However, you can expect the headlines about the report to remain focused on the big year-over-year change in the figure. Even with that level of a drop, inflation over the past 12 months will remain at elevated levels above 8%. That's more than four times the 2% mark that the Federal Reserve typically sets as its baseline annual inflation target.
The good news for investors, though, is that year-over-year inflation is likely to be down a full percentage point from its highest levels above the 9% mark earlier this summer. That will further support the argument that inflationary pressures have already hit their peak. Moreover, if energy prices continue to fall -- as they have in the first couple weeks of September -- it could bring even lower inflation levels.
Why it matters for Social Security
Meanwhile, Americans receiving Social Security will also be watching the latest inflation figures closely. That's because the August report provides one of the three monthly numbers that go into determining how big a cost-of-living adjustment (COLA) Social Security will pay out starting in January.
Image source: Getty Images.
In simplest terms, the Social Security Administration takes one measure of the CPI for July, August, and September and averages the three months' numbers together. It then compares the result to the average for the same period last year.
If inflation does indeed stay flat or ease lower in August, then it just about guarantees that the Social Security COLA won't reach the double-digit percentage figures that some have hoped to see. However, it would leave a roughly 9% boost to monthly benefits very much on the table.
Obviously, what the result is will be critical to those seniors living primarily on the income generated by Social Security. However, even those who've been successful in accumulating savings over their lifetimes are nervous about the volatile financial markets and the resulting hit to their portfolio balances. A slightly larger monthly check from Social Security could go a long way toward restoring confidence that at least one source of retirement income is reliable and able to stand up to inflationary pressures.
