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How will you know inflation's back?

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In 2009, the Social Security Administration gave a whopping 5.8 percent cost-of-living adjustment, or COLA, to its 55 million recipients, the largest annual increase since 1982. That was because inflation was rising rapidly in the third quarter of 2008, fueled by accelerating gas prices. The COLA is based on third-quarter prices compared to the third quarter one year earlier.

But for 2010 and 2011, the government said overall prices didn't rise. So Social Security recipients didn't get a raise. That was small comfort, no doubt, to retirees who like cereal and chicken.

The experts suggest inflation-watchers should keep an eye out for what Washington does to Social Security benefits later this year. Another zero percent raise -- or relatively small increase -- might be a good sign about inflation (though it's doubtful Social Security recipients would appreciate it). But if a COLA the size of a Big Gulp is granted, it could mean inflation has started to pop.

Of inflation in general, however, Dutta isn't expecting anything dramatic. "I think inflation will happen in a more normal way, and not burst forth like a tsunami," he says.


 

 

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