The January Inflation Bump Americans Should Welcome

Inflation was the bogeyman of 2022. Here at the dawn of 2023, the big question for the US economy is whether or not — and when — we'll dip into a recession this year. In that respect, the bogeyman could become more of a friend.

Look for inflation to provide an underappreciated boost to the economy this month, and that should push out recession risk until later in the year, at the very least. Social Security, Internal Revenue Service tax brackets, pay scales for government workers and minimum wages in some states adjust for inflation this month, just as they do every January. But because 2022 was the highest year for inflation in 40 years, the one-time adjustments that happen this month will pack a bigger punch than they have in decades.

Adding them all together will boost household incomes by around $200 billion, or 1% of disposable personal income. Measured against a Federal Reserve determined to slow the economy to rein in inflation, that isn't enough to prevent a recession in 2023, but it should mean the risk of recession in the first quarter, and likely the second, is very low.

The Social Security adjustment is probably the most familiar to Americans — recipients will get an 8.7% boost in their payments starting this month. With more than 50 million people receiving Social Security payments, this means monthly payments will increase by $7.3 billion this month, or almost $90 billion annualized. If inflation had been closer to the Fed's 2% target we would be looking at more like a $20 billion annualized increase, so this is a sizable difference.