After two years without a cost-of-living adjustment, federal retirees will receive a COLA hike in 2012, beginning in their January checks.
Retirees in the Civil Service Retirement System will see a 3.6 percent increase in their annuities, while retirees in the Federal Employees Retirement System will see a 2.6 percent increase.
COLAs are based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, an inflation measure put out by the Labor Department's Bureau of Labor Statistics. COLAs are based on the CPI-W during July, August and September of the current year compared against the same months in the previous year there was a peak in the inflation rate. The previous peak year was 2008. The percentage difference between the two years, in this case the difference between the 2011 and 2008 quarters, determines the amount of the COLA for CSRS retirees. If the CPI-W increases by 3 percent or more, as it did this year, eligible FERS retirees receive the CPI-W minus one percentage point.
BLS does not provide policy guidance for COLAs, a BLS spokeswoman notes.
Social Security, military retired pay and other government entitlements linked to the Consumer Price Index will also increase 3.6 percent.
Since 2009, there has been no retiree cost-of-living adjustment because weak economic conditions kept overall consumer prices flat or falling. That has not been the case this year, with increases in gasoline, energy and food costs driving up overall prices.
The National Active and Retired Federal Employees Association in a news release hailed the increase as "good news."
"NARFE continues to support strong COLAs based on fair assessments of increases in consumer prices to protect the value of federal annuities from inflation," the release said.