The Wall Street Journal

October 20, 2004

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Read the full text of Tuesday's economic reports, and analysis from

 Consumer prices -- Labor Department2; Briefing.com3
 Housing starts -- Commerce Department4; Briefing.com5

Social Security Benefits to Rise 2.7%

Cost-of-Living Increase
Will Be Offset for Some;
Inflation Gauge Climbs 0.2%

October 20, 2004; Page A2

WASHINGTON -- Social Security benefits are scheduled to rise 2.7% next year, but for the lowest income recipients, the increase will be offset by higher Medicare payments.

The announcement coincided with the Labor Department's report yesterday that the consumer-price index1, the most widely used gauge of inflation, rose 0.2% in September. Inflation rose in September by 2.5% from a year earlier.

The Social Security Administration said the increase in benefits, known as the cost-of-living adjustment, will boost the average monthly check to retired workers by $25, to $955, starting in January. For the average retired couple, the 2.7% benefit increase will boost their monthly Social Security benefits by $42, to $1,574.

The biggest checks will go to more than 52 million people, 47 million of whom receive Social Security benefits and the rest of whom get supplemental security income payments that go to the poor.

[A Small Rise]

William Novelli, chief executive of AARP, formerly called the American Association of Retired Persons, warns that "far too many social security beneficiaries will see the [increase] partially or completely eroded" by the medicare premium increase.

Medicare officials announced early last month that payments for the portion of Medicare that covers doctor and outpatient services will rise by $11.60, to $78.20 a month next year, a nearly 18% increase.

Democratic presidential candidate John Kerry attacked President Bush for his handling of the Social Security program. But the Bush campaign said yesterday that elderly citizens won't get smaller benefit checks in January than they did last December. The law, the campaign said, doesn't permit the Medicare premium increase to exceed the Social Security cost-of-living adjustment.

The announcement's timing two weeks before election day was coincidental. The Social Security inflation adjustment is announced each year on the day the Labor Department releases its September consumer-price index. The Social Security Administration last year announced a 2.1% increase, or $19 a month, for the average retiree.

In September, a sharp jump in lodging costs helped push up U.S. Core inflation -- minus volatile food and energy sectors -- by 0.3%, the fastest pace in five months, the Labor Department said.

The department said a 2.9% jump in the cost of lodging -- such as hotels and college housing -- accounted for about three-quarters of the higher September core consumer-price index, which had risen only 0.1% in each of the prior three months.

A 0.4% drop in energy prices in September, the third straight monthly decline, helped temper the rise in the consumer-price index.

In September, gasoline prices rose a mild 0.1%, the report said. Fuel-oil costs shot up 2.1%, but natural-gas prices slid 3.1% and electricity costs held steady.

"This confirms inflation remains steadfastly under control despite rising oil prices," said Peter Morici, a business professor at University of Maryland.

But experts said the energy report for last month doesn't reflect the recent sharp rise in oil prices, which have well exceeded $50 a barrel. Each $1 increase in crude-oil prices translates into 2½ cents per gallon of gasoline. Crude prices were at about their August levels in late September and have been rising since. "going forward, we can expect gasoline and home heating-oil prices to consistently follow crude-oil prices up," Mr. Morici said.

Write to Michael Schroeder at mike.schroeder@wsj.com6

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