Cheryl Casone analyzes the July CPI inflation report, which came in line with expectations. She highlighted a drop in energy and gasoline prices as stock futures rally and the Labor Department releases the fresh economic data.
Social Security beneficiaries are still expected to see a larger cost-of-living adjustment (COLA) in 2027 than they did this year, though it has decreased as inflation eased in July.
By law, the annual Social Security COLA is calculated using the Bureau of Labor Statistics’ consumer price index (CPI) inflation data for the months of July, August and September based on a variant of the dataset known as CPI-W. The COLA boosts beneficiaries’ payments to account for a rise in the cost of living, and the COLA for 2026 amounted to a 2.8% increase.
The BLS released the July CPI inflation data Wednesday that showed consumer prices were up 3.4% from a year ago. That’s down from a 3.5% annual reading in June.
Several groups have released estimates for the 2027 COLA based on the July data and estimates for the next two months of data, which have the COLA landing in a range from 3.2% to 3.6%.
INFLATION COOLED IN JULY BUT REMAINED ELEVATED AS FED WEIGHS RATE HIKES
The nonpartisan Committee for a Responsible Federal Budget released the lowest of those estimates, projecting the COLA will ultimately be at 3.2% when the final data is released this fall. It noted in its analysis that CPI-W was flat in July and is up 3.4% over the last year.
“High COLAs can provide helpful near-term support to seniors, but also impose significant costs for a Social Security retirement fund that is just six years from insolvency,” CRFB said, adding that automatic benefit cuts of 22% would occur if the fund is depleted.
CRFB has proposed reforms to COLAs aimed at helping to shore up Social Security’s solvency, including a COLA cap for high-income beneficiaries as well as a flat rate COLA.
ONE TYPE OF SOCIAL SECURITY ADJUSTMENT COULD CUT THE 75-YEAR SHORTFALL IN HALF
Social Security’s 2027 COLA is estimated at between 3.2% and 3.6%, with about two months left until the official COLA is finalized. (Getty Images/stock)
The AARP, which advocates for policies it views as beneficial to people over the age of 50, estimates that the 2027 COLA will be 3.5% in its first-ever COLA estimate to be released before the third-quarter inflation reports come out.
“The sooner that we can give them reliable information as to how much their benefits might [increase next year], the sooner they can start planning,” AARP VP for Financial Security Rich Johnson said.
“There’s a lot of uncertainty about how food and, especially, energy prices will play out over the next two months. This is not set in stone.”
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A woman walks into a Social Security office in Houston, Texas, July 13, 2022. (Mark Felix/The Washington Post / Getty Images)
The Senior Citizens League (TSCL) released an estimate that puts the 2027 COLA at 3.6%, which would represent an increase of 0.8 percentage points when compared with the 2026 COLA.
The TSCL analysis noted that if the estimated COLA were to take effect today, it would amount to an increase of $69.75 in average benefits, rising to $2,007.28 from $1,937.53.
TSCL executive director Shannon Benton said in a statement that, “One of the wildcards in this year’s forecast has been inflation’s volatility. It started the year at 2.2%, then surged to 4.4% by May before falling back to 3.5% in June.”
“That kind of instability can throw off forecasts, but our model is designed to avoid chasing every spike and dip, which has kept our predictions on a relatively steady course,” Benton added.
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The official 2027 COLA will be announced Oct. 14 after the BLS release of September CPI inflation data. It will take effect starting with payments to beneficiaries in January.
