The COLA is calculated by comparing consumer prices in July, August and September each year with prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.
Since 1975, annual Social Security raises have averaged just over 4 percent. Next year will mark only the seventh time the COLA has been less than 2 percent. This year's increase was 1.7 percent. There was no COLA in 2010 or 2011 because inflation was too low.
"By providing protection against inflation, the COLA helps beneficiaries of all ages maintain their standard of living, keeping many from falling into poverty,'' said AARP executive vice president Nancy LeaMond. "The COLA announced today is vital to millions, but at an average of just $19 per month, it will quickly be consumed by the rising costs of basic needs like food, utilities and health care.''
Lower prices for gasoline are helping keep inflation low. The average price of a gallon of regular gasoline has dropped over the past year from $3.53 to about $3.28, according to the automotive club AAA.
Over the past year, medical costs went up less than in previous years but still outpaced other consumer prices, rising 2.4 percent, according to the Bureau of Labor Statistics. Housing costs went up 2.3 percent.
To save money, Congress has considered adopting a new measure of inflation called the chained CPI, which would, on average, result in slightly smaller COLAs most years. President Barack Obama has supported the idea in previous budget talks with House Speaker John Boehner, R-Ohio, making it one of the few issues the two agree on.
Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience. The White House has called it a "technical change,'' though many advocates for older Americans are pledging to fight it.
The issue could come up again as part of a new round of budget talks that began Wednesday on Capitol Hill. Following the recent government shutdown, House and Senate leaders formed a new committee that is trying to reach a budget deal for next year and beyond. The committee has a deadline of mid-December.
If the chained CPI were in use today, next year's COLA would still be 1.5 percent. That's because the differences between the two inflation measures are smaller when the COLA is small.
"Proponents of a stingier COLA formula claim the chained CPI is more accurate. However, in truth it is a benefit cut for millions of current and future retirees, veterans, people with disabilities and their families,'' said Max Richtman, who heads the National Committee to Preserve Social Security and Medicare.
Associated Press reporter Christopher S. Rugaber contributed to this report.
Follow Stephen Ohlemacher on Twitter at http://twitter.com/stephenatap