Because the SS cost of living adjustment is calculated from the average consumer price index of July, August and September each year. In the summer of 2008 there was a huge price spike from food and energy prices (that was the first time we hit $4 per gallon for gasoline). Thus the January 2009 COLA was nearly 6%. The CPI dropped in 2009 so there was no COLA in 2010. The CPI rose in 2010 but not up the 2008 level, so there was no COLA again. Finally in 2011 it rose above the 2008 level so there will be a COLA in this January. If the fourth quarter CPI was used instead of third quarter, the COLA for 2009, 2010 and 2011 would have been about 2% per year instead of almost 6%, 0% and 0%.
People may argue about whether the CPI accurately reflects inflation, but the calculation of the COLA from the CPI wasn't messed with.
Thanks for the explanation.