Social Security recipients can expect a smaller cost-of-living adjustment, or COLA, in 2027 after the annual inflation rate tumbled in June, driven by the largest drop in consumer energy prices in over six years.
Mary Johnson, an independent Social Security policy analyst, significantly revised her estimate of the 2027 COLA downward.
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Johnson cut her forecast by a full percentage point — from 4.7% last month to 3.7% on Tuesday — after new data indicated that inflation slowed more than expected in June. A 3.7% COLA would deliver an average increase of $74 per month to 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 a smaller COLA means smaller benefit increases next year, it also reflects slower price growth that should ease pressure on retirees' budgets.
The official 2027 COLA will be calculated from the average of the CPI-W readings for July, August and September — the third quarter of the year. The BLS is expected to release the first of those readings on Aug. 12.
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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%, down from 4.2% a month earlier.
The CPI is the most-watched inflation measure, 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. As with 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've rarely seen in the June CPI data over the past five years," Johnson said in a news release Tuesday.
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Gas prices could push the 2027 COLA higher
The CPI-W includes energy costs, which have been volatile this year. Gas prices have fallen by about 70 cents per gallon since their peak in May, according to AAA.
So far in July, gas prices have been rising again, with the national average increasing about 7 cents in the past week, according to AAA. The rebound in oil and gas prices comes as the U.S. and Iran have continued to carry out strikes.
"With ongoing tensions with Iran in the Strait of Hormuz affecting oil prices, it is unclear whether this drop in inflation will be sustained," Johnson wrote.
The Senior Citizens League, an advocacy group that also issues monthly COLA forecasts, said in a release Tuesday that its 3.8% estimate remains unchanged from the prior month.
The two separate estimates, now closely aligned, had diverged by nearly a full percentage point as of last month — perhaps because Johnson's modeling did not anticipate the steep drop in gasoline prices.
