By David Enna, Tipswatch.com

Each July, since 2017, I have been forecasting the next year’s Social Security cost-of-living adjustment. Over the years, I have learned one thing: It’s important to be humble.

This is a nearly impossible task, combining an obscure inflation index, a weird quarter-year average, and summer months of traditionally volatile inflation. And this summer, the inflation picture is hidden in deep fog, making any projection “a wild guess.”

COLA basics

It is important to understand the needlessly complex way the COLA is calculated, which is rarely explained in mainstream media.

• The index. The Social Security Administration does not use the standard measure of inflation that you see reported each month. Instead it uses CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers, which often runs slightly lower than the standard CPI-U. See this.
• The time period. Instead of using a specific annual rate of inflation, the SSA looks at an average of CPI-W indexes for three months, July to September, and compares that to the average from a year earlier. In 2025, for example, the three-month average was 317.265, an increase of 2.8% over the average for 2024. So the COLA for 2026 payments was set at 2.8%.
• The summer months. Inflation can be notoriously volatile in the months of July to September. We got a hint of that when the CPI-U index for June fell by 0.35% because of plummeting gas prices (which have since mostly reversed). We’ve had at least one deflationary third-quarter month in 2014, 2015, 2016, 2017, 2019, and 2022. In other words: expect anything.

The projection

Now that you know why my forecast is likely to be wrong, let’s get on with it.

The June inflation report, released July 14, set the baseline for this COLA calculation. For June, the BLS set the CPI-W index at 333.952, an increase of 3.5% over the last year. So does that mean the Social Security COLA will end up being 3.5%? No, that is the baseline, but the actual COLA calculation will be based on the average of CPI-W indexes for July to September.

In this chart, I have provided six potential monthly inflation scenarios for the July to September period — an average of 0.0% to 0.5% per month — and then calculated the effect on the eventual Social Security COLA.

Before the surprising June “deflation” report — reflecting tumbling gas prices — I would have predicted flat overall inflation for June and then inflation of about 0.3% a month over the July to September period. That would have raised the COLA to a number around 4.0%.

June deflation skewed the equation lower. However, since July 1, the national average gas price has increased from about $3.87 on June 30 to $4.11 today, up about 6.2%. We are likely to see continued increases through the end of the month. That in itself would result in about a 0.18% increase in all-items inflation.

The Cleveland Fed, however, is currently nowcasting an all-items inflation rate of only 0.04% for July. (And that is up from -0.14% about 10 days ago.) I don’t rely on this forecast to be accurate, but it is worth considering. It would seem to indicate a fairly small CPI-W increase for July, possibly ramping up in August and September.

It’s also important to look at how much CPI-W inflation increased a year ago for the months of July to September, since this sets up the end-game calculation for the COLA.

Remember that the June 2026 baseline was an increase of 3.5% in CPI-W. For that number to hold, inflation will have to average at least about 0.20% a month for the next three months. That could happen — we could a 2026 pattern similar to 2025, resulting in a COLA of 3.5%.

For my forecast, I am going to go slightly higher: 3.6%.

What others are saying

I wrote everything up to this point without looking at any other COLA forecasts — it’s my work, right or wrong. Now let’s take a look at others …

Right away, one “fun” forecast came on June 12 from CNBC: 4.7%. That followed the May inflation report, when CPI-W was up 0.7% for the month and 4.4% for the year. Then, after the release of the June report, CNBC followed up that forecast on July 14 with a lower estimate: 3.7% to 3.8%.

AARP in a July 14 article forecast an increase of 3.6% for 2027, matching my prediction.

A group I highly respect, the Senior Citizens League, a week ago was projecting an increase of 3.8% for 2027. The SCL puts a lot of research behind its forecast, so it has credibility. (Last year, the League predicted an increase of 2.7%. My prediction was 2.8% … exactly on target. I got lucky.)

What this all means

The SCL says the average monthly payment for retired workers in June 2026 was $2,084. An increase of 3.6% in 2027 payments would push the monthly amount up about $75 to $2,159.

But keep in mind that any increase in the COLA will be partially offset by rising Medicare costs in 2027. The COLA for 2026 was up 2.8% but most Medicare costs increased about 9.7%. More on that here.

SSA COLA versus CPI

The combination of using CPI-W and the smoothing effect of a three-month average sometimes results in the Social Security COLA being lower than annual CPI. The SCL has lobbied for years to replace CPI-W with CPI-E, an index that more accurately reflects costs faced by older Americans.

For benefits in 2026 the COLA was 2.8%, trailing CPI-U at 3.0%.

More information:

— Does The Social Security COLA Shortchange Seniors?

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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.