Social Security recipients can expect a smaller cost-of-living adjustment, or COLA, in 2027 after the annual inflation rate slowed in June, driven by the biggest drop in consumer prices in six years.
Mary Johnson, an independent Social Security policy analyst, significantly revised her 2027 COLA estimate downward.
Johnson cut his forecast by a full percentage point – from 4.7% last month to 3.7% on Tuesday – after new data showed inflation fell more than expected in June. A 3.7% COLA would bring an average increase of $74 per month in Social Security benefits.
The annual COLA is designed to prevent inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits for the more than 75 million people who receive them. While the smaller COLA means a smaller benefit increase next year, it also reflects slower price growth that should ease pressure on retirees’ budgets.
The official COLA for 2027 will be calculated from the average CPI-W readings for July, August and September – the third quarter of the year. The BLS is expected to release the first of those studies on August 12.
Why the 2027 COLA forecast just changed
The consumer price index (CPI) report for June, released by the Bureau of Labor Statistics, or BLS, showed an annual inflation rate of 3.5%, up from 4.2% the previous month.
The CPI is the most widely watched measure of inflation, but the Social Security Administration uses a slightly different inflation metric to calculate the COLA – the consumer price index for urban wage earners and clerical workers, or CPI-W. Like the CPI, inflation as measured by the CPI-W was also 3.5% in June, down from 4.4% in May.
“This is a significant drop in inflation, and one that we have not seen in June CPI data in the last five years,” Johnson said in a news release on Tuesday.
Gas prices could increase the 2027 COLA
The CPI-W includes energy costs, which have been volatile this year. Gasoline prices are down about 70 cents per gallon since they peaked in May, according to AAA.
So far in July, gas prices have risen again, with the national average rising about 7 cents last week, according to AAA. The drop in oil and gas prices comes as the US and Iran continue to strike.
“As ongoing tensions with Iran in the Strait of Hormuz affect oil prices, it is unclear whether this inflation will continue,” Johnson wrote.
The Senior Citizens League, an advocacy group that also issues monthly COLA forecasts, said in a statement Tuesday that its estimate of 3.8% remained unchanged from last month.
The two separate estimates, now closely aligned, had diverged by nearly a full percentage point since last month — perhaps because Johnson’s modeling did not anticipate a drop in gasoline prices.
