"...Military retired pay rises each year to ensure that inflation does not erode the purchasing power of retirees. These cost-of-living adjustments, known as COLAs, match the annual increase in Social Security benefits. They become effective each Dec. 1 and first show up in January paychecks.
The foundation for the COLA adjustment is the Labor Department’s Consumer Price Index, a measure of the cost of certain categories of goods and services that is updated monthly. There is one overall CPI, as well as a variety of more specific indexes. The index upon which the retired pay COLA is based is called the CPI for Urban Wage Earners and Clerical Workers, or CPI-W.
The rate of inflation may rise and fall throughout the year, but the exact increase in retired pay is based..."