If you are a city slicker you can be forgiven for confusing horses and cows. At least from a distance. But up close they are very different critters. Clue: A cow has NEVER won the Kentucky Derby!!!

People who can’t tell the difference between a federal pay raise and a cost of living adjustment may get a reality-check in October when inflation-tracking numbers are published.

White collar federal workers are in line for a 1.4 percent pay raise in January. If it holds up it will be the smallest pay raise feds have had in years.

Retired federal workers (military retirees and people who get Social Security benefits) usually get cost of living adjustments in January. The 5.8 percent raise they got in 2009 was larger (in some cases much larger) than the pay raise working feds got that year.

But thanks to deflation, retirees (who get inflation-triggered COLAs, not pay raises) the former feds did not get a COLA this year (in 2010) and they probably won’t get one next January.

Pay raises are based on political and budgetary considerations. They have little, if anything, to do with the rise (or fall) in living costs.

But COLAs are based on the Bureau of Labor Statistics Consumer Price Index for Urban Wage Earners and Clerical Workers. In government short-hand it’s the CPI-W.

Items in the CPI include everything from the price of biscuits and baseball tickets to food, drink, new and used cars and even the cost of funerals. The good news, according to the CPI, is that the price of lots of things has dropped over the past year. Exceptions , like you hadn’t noticed, include things like the price of airline tickets or the cost of medical services. They are up.

In 1981 the CPI-determined COLA was 14.3 percent, the next year it was 11.2 percent. By 1987 the COLA had dropped to 1.3 percent. In 2006 retirees The 2008 raise was 2.3 percent and the following year, 2009, retirees got 5.8 percent. That reflected the spike in oil prices. But the next year (2010) there was no COLA. And that is on track to happen again.

Short answer, because of deflation, the retirees are not likely to get a COLA in January even as feds get a 1.4 percent (congress willing) pay raise. If you really want to get into the mysteries of the CPI-W, checkout out this explanation from the National Active and Retired Federal Employees. It deals with the most recent ( July 2010) CPI report:

JULY 2010 CONSUMER PRICE NEWS

“The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.03% percent from June to July. Released by the Bureau of Labor Statistics on August 13, the CPI-W for July is 213.898. For purposes of calculating the next COLA (cost-of-living adjustment), the index, which will be averaged with the August and September indices, is still 0.74 percent below the 2008 third quarter average base index of 215.5. (Due to price deflation, in the past measurement year, the 2008 third quarter average is still the point of comparison.) August consumer price indices will be released Friday, September 17, 2010.”

Kids In College

Imagine you had 26 kids in college at the same time? How would you handle it?

Thanks to the generosity of federal and postal workers, and retirees, a retired fed (with lots of help) has been paying tuition for lots of young people for years. In fact things are getting better, considering he had 61 kids in college in 1998.

For more on the education program, and your part in it, check out tomorrow’s column, then listen to our Your Turn radio show Wednesday at 10 a.m.

Nearly Useless Factoid
by Vyomika Jairam

Coney Island is the birthplace of not just the modern American amusement park and the full circuit roller coaster, but also the dark ride.

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