Inflation was lower than projected in February. Federal employees are stressed. TSP prices are down. Here are latest big cuts in a federal agency and projected 2026 COLA.

Inflation Lowest Since April 2021

The consumer-price index (CPI) report based on February data is more important than it often is as there is a possibility of stagflation in the air, which is a mix of high inflation and a declining economy.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in February, after rising 0.5% in January, the Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 2.8%.

A survey of economists had led to predictions of an increase of 0.3% so the 0.2% increase was lower than the forecast. The “core CPI” figure was up 0.2% in February, also below the 0.3% forecast.

The 12-month inflation increase was down to 2.8% from 3% in the last report. The increase in core CPI in the past 12 months also decreased to 3.1% from 3.3%. This is the lowest increase since April 2021.

While lower inflation is good news, particularly after the rapid inflation increase in recent years, investors are concerned about the potential inflationary impact of tariffs that are making headlines in recent days.

Stock prices shot up shortly after the latest CPI data were released.

Stress on the Federal Workforce—More Agency Cuts Announced, and TSP Funds Lower

One of the biggest concerns about investors in the Thrift Savings Plan (TSP) is the recent decline in the core TSP stock funds.

As of the close of the market on March 11, 2024, all of the TSP Funds (with the usual exception of the G Fund, which always goes up) are down so far in March. Here is how the TSP stock funds are performing so far in March and for the year to date.

The C and S Funds are down so far in March and 2025. The I Fund, which has not performed as well as the C and S Funds in the recent bull market in stocks, is doing much better than the other two core stock funds in March and so far in 2025.

It has been a stressful year for federal employees. More disruptions and stress are on the horizon with continuing cuts in the size of the federal workforce and moving employees into and out of Washington, DC. Changes are being made in the structure of various agencies.

For example, in the latest news, the Department of Education, a relatively small federal agency, is eliminating 1,950 staff positions, including 1,315 employees, through the reduction-in-force process. Agency officials also said about 600 employees accepted deferred resignation offers or voluntary buyouts, and an additional 63 probationary employees were terminated.

2026 COLA Projections

It is still very early to have much accuracy in projecting the amount of the cost of living adjustment (COLA) for 2026.

There was a 2.5% COLA for Social Security benefits, Civil Service Retirement System (CSRS) annuities, and military retirement annuities. There was a 2.0% COLA in 2025 for Federal Employees Retirement System (FERS) annuities. 

The index used for calculating the annual COLA is the Urban Wage Earners and Clerical Workers index (CPI-W). The CPI-W increased 2.7% over the last 12 months to an index level of 312.640. For February, the index increased by 0.4%.

The COLA for the coming year is calculated by the CPI-W from year to year, based on the average of the third-quarter months of July, August, and September.

The latest projection for the 2026 COLA from the Senior Citizens League was for a COLA of 2.3%. This projection will vary each month based on the latest inflation figure. At this time, it appears the 2026 COLA will likely be slightly lower than it was in 2025, depending on various events that will impact inflation through September.