Economists are famed for the phrase “on the other hand,” and the sobriquet fits in looking at the most recent report on the Consumer Price Index.

While Friday’s report on the CPI was benign -- no change in the overall price index and a modest change in the “core” index -- it nonetheless could be a downer to millions of people collecting Social Security payments

Under provisions of a 1975 law, Social Security benefits are adjusted each year based on the year-to-year change of the Consumer Price Index for Urban Wage Earners (known as CPI-W). For every year since the law was enacted, benefits have been adjusted upward each January, with a 5.8% boost at the beginning of this year, the largest since 1982.

Not so in January 2010. And, even more, probably not so for 2011 or 2012.

CPI-W is expected to drop from third quarter 2008 to third quarter 2009 and while it won’t allow for an increase in monthly checks, the “good news” is checks won’t be reduced.

Here’s the detail.

While CPI-W jumped 5.8% from 2007 to 2008, from the third quarter of 2008 to the first quarter of 2009, the CPI-W has fallen by about 4%. Even though it is expected to increase slightly, it will not likely hit 215.2, the level at the end of September (the end of the third quarter) and thus not allow for a cost-of-living adjustment. By law, Social Security benefits are unchanged in years in which the change in CPI-W since the previous adjustment to benefits is zero or less than zero. Thus, benefits won’t be reduced.

Beyond the absence of any increase based on this year’s numbers, the outlook for longer term inflation is moderate as well and, at least according to the Congressional Budget Office, the CPI-W will not magic 215.2 threshold until late in 2011 (too late for a COLA to be paid in 2012) which would mean no cost-of-living adjustment until January 2013 and that Social Security recipients will go four years without an increase.

The increase last January averaged $63 a month for all 44 million Social Security recipients though it was as high as $131 a month for a widowed mother and two children.

Even then, CBO estimated, the CPI-W will go to only 217.0 at the end of the third quarter of 2012 translating to a 0.8% COLA in January 2013 which would be the lowest (excluding the expected four years of no increase) in the history of the law.

Prices may continue to rise in the interim, but not by enough to trigger the COLA which raises an interesting point: should the COLA be measured by price increases or wage increases which workers will most certainly receive as the nation’s economy recovers. Indeed the absence of a COLA for Social Security recipients and its dampening effect on consumer spending could be a drag on the economy.

The absence of COLAs will have a positive -- or at least not negative -- effect on employers and their employees: the maximum amount of wages subject to Social Security taxes will remain at its current limit of $106,800 (up from $102,000 one year earlier). The Social Security Act specifies the taxable maximum increases only in years in which a COLA occurs. Under CBO’s forecast, that maximum will be frozen until 2013 when the contribution and benefit base will increased by the change in the national wage index since the last time a COLA was triggered.

CBO estimated in 2013 the tax base will jump to $118,200 -- a whopping 10.7% increase -- reflecting the cumulative change in the national wage index during the period of no COLAs.

One aspect of Social Security that will not be affected by the near flat price index would be initial benefits which are linked to annual growth in earnings and not prices. The calculation, known as “wage-indexing” is applied to a person’s earnings history. The dollar values in the benefit formula are adjusted by the annual percentage change in average earnings, which could be negative if wages fall.