Table 1: CPI-W, All Items, third-quarter averages, 2007–10

Year July August September Third-quarter 

average

Percent change 

from previous 

third quarter

Cost-of-living 

adjustment 

(percent)

2007 203.700 203.199 203.889 203.596 ... ...

2008 216.304 215.247 214.935 215.495 5.8 5.8

2009 210.526 211.156 211.322 211.001 -2.1 0

2010 213.898 214.205 214.306 214.136 1.5 0

Current Price Topics

The Use of the CPI

in Social Security

Cost-of-Living 

1

Consumer Price Index: Third Quarter 2010

U.S. Bureau of Labor Statistics November 2010 Volume 1, Number 10

Adjustments (COLAs) More than 50 million 

people currently receive Social Security 

benefits.1

 In 1972, Congress passed legislation 

tying Social Security cost-of-living adjustments 

(COLAs) to changes in the Consumer Price 

Index. Specifically, these COLAs are based on 

the Consumer Price Index for Urban Wage 

Earners and Clerical Workers (CPI-W), All Items, 

from the third quarter of one year to the third 

quarter of the next year.

COLA effective for 2009. The third-quarter average 

2007 CPI-W, All Items index stood at 203.596. The 

CPI-W average for the third quarter of 2008 was 

215.495, an increase of 5.8 percent. (See table 1.) 

This 5.8-percent cost-of-living increase, which 

became effective in 2009, was the highest COLA 

in more than 25 years. The steep rise was due 

to both sharply higher gasoline prices, which 

climbed 35.2 percent from the third quarter of 

2007 to the third quarter of 2008, and higher 

prices for food, which increased 6.2 percent over 

the same period.

COLA effective for 2010. From the third quarter 

of 2008 to the third quarter of 2009, the CPI-W 

actually fell 2.1 percent, due in large part to 

gasoline prices, which dropped 32.5 percent 

over that period. This was the first time the 

CPI-W, All Items index had fallen since Social 

Security COLAs were tied to the CPI. When 

the CPI-W falls, Social Security benefits do not 

fall. Instead, they remain unchanged.2

 For this 

reason, there was no COLA for 2010.

COLA effective for 2011. In the third quarter of 

2010, the CPI-W stood at 214.136. Although this 

was higher than the 2009 third-quarter CPI-W 

average of 211.001, Social Security recipients will 

not receive a COLA in 2011. This is because, by 

legislation, the CPI-W must exceed its previous 

third-quarter peak, recorded in 2008, in order 

for there to be a positive COLA the next year. 

Put another way, because the third-quarter 

2010 CPI-W level of 214.136 did not exceed its 

previous peak of 215.495 in 2008, there will be 

no automatic COLA in 2011.3
2

All Items

The Consumer Price Index for All Urban 

Consumers (CPI-U), All Items, increased at a 

2.7-percent seasonally adjusted annual rate 

(SAAR) during the third quarter of 2010. For 

the first 9 months of 2010, the index has 

increased at a 0.7-percent SAAR, compared 

with a rise of 2.7 percent in 2009.

A turnaround in the energy index was the 

main cause of the third-quarter upturn in the 

all-items index. The energy index increased at 

a 24.5-percent annual rate in the third quarter, 

after falling sharply in the second quarter. 

The index, which rose significantly in 2009, 

continued to climb in the first 9 months of 

2010, but at a more modest pace. Inflation for 

the index for all items less food and energy

continued to decelerate, with the increase 

for 2010 rising at one-third the rate posted 

in 2009. In contrast, the food index has risen 

modestly in 2010 after declining in 2009.

Energy

Energy remained the most volatile major CPI 

component. After climbing at a 9.2-percent 

SAAR in the first quarter of 2010 and declining 

at a 25.7-percent SAAR in the second quarter, 

the energy index jumped 24.5 percent in 

the third quarter. (See chart 1.) For the first 9 

months of 2010, the energy index has risen 

Current Price Trends

Rise in Energy Prices

Drives Third-Quarter Retail 

Inflation Picture

 C U R R E N T P R I C E T R E N D S
3

at a 0.4-percent SAAR, after increasing 18.2 

percent in all of 2009.

Within the energy component, the gasoline

index increased at a 48.8-percent SAAR in 

the third quarter of 2010, after falling at a 

38.9-percent SAAR in the second quarter. This 

trend continues the sharp changes seen in 

gasoline prices over the past few years. From 

July 2007 to July 2008, gasoline prices rose 

37.9 percent. After crude oil prices peaked 

in July 2008 at more than $134 a barrel, they 

plummeted during the last 5 months of that 

year, to under $32 a barrel. At the retail level, 

gasoline prices fell by more than 50 percent. 

In 2009, pump prices turned sharply higher 

again, increasing more than 50 percent, with 

crude oil prices increasing to around $70 a 

barrel by the end of 2009.

The household energy index rose at a 

1.9-percent SAAR in the third quarter of 2010, 

after falling 10.1 percent in the second quarter. 

All the major components of household energy 

rose in the third quarter. The natural gas index 

rose at a 1.8-percent SAAR in the third quarter, 

after declining at a 17.7-percent SAAR in the 

second quarter. For the first three quarters 

of 2010, the natural gas index increased at 

a 2.9-percent annual rate, after falling 18.1 

percent in 2009. The electricity index rose 2.0 

percent in the third quarter of 2010, identical to 

its first-quarter performance, but was down 7.1 

percent in the second quarter. Electricity prices 

had declined 0.5 percent in 2009. The fuel oil

index increased 0.1 percent in the third quarter 

of 2010, after falling at an 8.9-percent rate in 

the second quarter.

Food

Food prices rose at a 1.6-percent SAAR in the 

third quarter of 2010, after rising 0.6 percent 

in the second quarter. The food index has 

increased 1.5 percent so far in 2010, after 

slipping 0.5 percent in 2009. Grocery store 

food prices rose at a 1.2-percent SAAR in the 

third quarter, after a flat second quarter and 

an increase of 3.7 percent in the first quarter. 

Of the six major grocery store food groups, 

the meats, poultry, fish, and eggs group 

increased the most in the third quarter, 3.2 

percent. Prices for a variety of breakfast items 

climbed significantly in the third quarter, 

with coffee and egg prices up at SAARs of 

13.0 percent and 32.8 percent, respectively. 

In addition, prices for bacon and breakfast 

sausage rose 29.6 percent. Most of the 

other food at home groups posted modest 

increases in the third quarter of 2010. Cereals 

and bakery products rose 2.3 percent, dairy 

products increased 2.2 percent, nonalcoholic 

beverages were up 2.1 percent, and other 

food at home increased 1.8 percent. In contrast, 

fruits and vegetables fell at a 5.7-percent SAAR 

in the third quarter, with fresh fruits falling 

10.7 percent. Within fresh fruits, apple prices 

were down 21.2 percent and oranges fell 21.3 

percent. These decreases more than offset 

an 8.6-percent increase in the banana index. 

The index for fresh vegetables decreased at 

a 2.5-percent SAAR in the third quarter, with 

lettuce falling 13.5 percent.

Prices for food away from home rose at a 

2.3-percent SAAR in the third quarter, after 

rising at a 1.4-percent rate in the second quarter. 

 C U R R E N T P R I C E T R E N D S
4

Food at employee sites and schools jumped 9.2 

percent in the third quarter of 2010, after more 

modest increases earlier in the year. 

Both grocery store prices and the index for 

food away from home were up 1.4 percent 

over the past 12 months.

All items less food and energy

The index for all items less food and energy

rose at a 0.7-percent SAAR in the third quarter 

of 2010, nearly half the 1.3-percent rate of 

increase recorded in the second quarter. This 

index had fallen at a 0.2-percent annual rate in 

the first quarter. The shelter index decelerated 

as well, increasing 0.4 percent in the third 

quarter after a 0.9-percent increase in the 

second quarter. Shelter prices had fallen 2.2 

percent in the first quarter of 2010. Within 

shelter, owner’s equivalent rent and rent of 

primary residence each rose at a 0.5-percent 

SAAR in the third quarter. Lodging away 

from home declined 5.1 percent in the third 

quarter, after a 23.1-percent spike in the 

second quarter. 

The index for other goods and services rose 

at a 3.6-percent SAAR in the third quarter 

of 2010. Other significant components with 

increases included the medical care index, 

which grew 3.2 percent, and the index for 

new and used motor vehicles, which rose 

1.8 percent. By contrast, declines in the third 

quarter were noted in apparel, which fell 0.9 

percent, and recreation, which fell 2.3 percent. 

For the first time in many years, educational 

books and supplies fell; the drop in the 

third-quarter, 2010, SAAR was 3.8 percent. 

 C U R R E N T P R I C E T R E N D S
 C U R R E N T P R I C E T R E N D S

The index had increased 6.2 percent in the 

second quarter.

Household furnishings and operations

declined 1.5 percent in the third quarter of 

2010, compared with a 3.7-percent rate of 

increase in each of the previous two quarters. 

The index for airline fares reversed in the 

third quarter, falling 4.6 percent after a 

14.3-percent increase in the second quarter. 

The communication index was unchanged in 

the third quarter, after falling at a 1.3-percent 

rate in the second quarter. 

The annual rate of inflation for all items less 

food and energy continued its deceleration 

in 2010. (See chart 2.) The 12-month percent 

change ending September 2010 was 0.8 

percent, the smallest increase since March 

1961. For the 5-year period from September 

2004 to September 2009, this index had 

increased at a 2.2-percent annual rate. 

The shelter index also has decelerated in 

recent years. The 12-month percent changes 

in shelter ending September 2006, 2007, 2008, 

and 2009 were 4.2 percent, 3.5 percent, 2.4 

percent, and 0.7 percent, respectively. In 2010, 

shelter continues to pull down the index for all 

items less food and energy, with the current 

12-month percent change for shelter standing 

at –0.4 percent. Other indexes contributing 

downward pressure on the annual index for all 

items less food and energy included household 

furnishings and operations, apparel, recreation, 

and communication. In contrast to prices for 

shelter, prices for used cars and trucks have 

increased 12.9 percent over the past 12 months. 

Price movements described in this text reflect 

data released on October 15, 2010. Except 

as noted, all 12-month-and-longer percent 

changes reflect data that were not seasonally 

adjusted. Percent changes covering less than a 

year are based on seasonally adjusted annual 

rates, unless otherwise noted. CPI seasonally 

adjusted indexes and percent changes are 

subject to annual revision.

Further information is available from the 

CPI Information and Analysis section, at 

cpi_info@bls.gov or (202) 691-7000.

Notes

1

 See Press Office Fact Sheet: Social Security Basic Facts (U.S. Social Security Administration, Aug. 10, 2010), on the Internet at 

www.ssa.gov/pressoffice/basicfact.htm (visited Nov. 1, 2010).

2

 That said, changes in Social Security benefits are potentially affected by factors other than COLAs, such as changes in Medicare 

premiums.

3

 More information on how the Social Security Administration uses the CPI to adjust benefits can be found in Automatic Increases: 

Latest Cost-of-Living Adjustments (U.S. Social Security Administration, Oct. 15, 2010), on the Internet at www.ssa.gov/OACT/

COLA/latestCOLA.html (visited Nov. 1, 2010).

5