Inflation ticked up in August, but analysts still predict a modest bump in benefits
From AARP — By Deirdre Shesgreen —
Social Security recipients now have the second of three data points that will determine their cost-of-living adjustment (COLA) in 2026.
A key gauge for inflation — the Consumer Price Index for Urban Wage Earners and Clerical Workers (known as the CPI-W) — rose by 2.8 percent in August 2025 compared with one year ago, according to data released Sept. 11 by the federal Bureau of Labor Statistics (BLS).
Annual COLAs are based on how much the CPI-W changes in the third quarter of the year — July, August and September — from the same period the previous year. The CPI-W rose by 2.5 percent in July compared with the previous year. The final COLA for 2026 will be announced in October.
A CPI-W of 2.8 percent for August suggests that Social Security recipients may see a modest bump in their Social Security payments starting in January 2026.
“I expect something similar next month — maybe a bit higher due to the current volatile and unpredictable import tax regime,” says Indivar Dutta-Gupta, a distinguished visiting fellow with the National Academy of Social Insurance, referring to the Trump administration’s tariff policies.
“I do suspect that the August and September figures will nudge [the 2026 COLA] up toward 2.7 percent,” Dutta-Gupta says.
The final inflation number that goes into the COLA calculation will be released on Oct. 15, when the Social Security Administration will announce the COLA for 2026.
A 2.7 percent COLA would increase the average benefit for a retired worker — which in August 2025 was $2,008 a month — by about $54. The average monthly survivor benefit ($1,575 in August) would inch up by about $43, while the average payment for a worker collecting Social Security Disability Insurance ($1,583 in August) would go up by $43.
Teresa Ghilarducci, a labor economist at New York City’s New School for Social Research, expects a COLA of about 2.8 percent but says that “probably won’t be enough to cover the inflation rates that we’re headed into” if the tariffs remain in place. The Supreme Court has agreed to hear a case challenging the legality of those import taxes.
The 2025 COLA, which was based on third-quarter inflation data for 2024, boosted the average Social Security retirement benefit by about $49 a month. The 2024 COLA of 3.2 percent pushed payments up by $59 for the average retiree.
Helping older adults keep up
Bill Sweeney, AARP’s senior vice president of government affairs, says the annual COLA is one of the most important elements of the Social Security program.
“This wasn’t originally part of Social Security,” he says, noting that in 1972 AARP fought to make COLAs automatic rather than subject to a congressional vote.
“For many people, Social Security is the only inflation-protected income they have in retirement,” Sweeney says. And for more than 50 years, he adds, the COLA “has allowed America’s seniors to keep up as everyday costs continue to rise — from groceries to housing to prescription drugs.”
Some older adults may also benefit from a new $6,000 tax deduction for older taxpayers included in the recent “One Big Beautiful Bill.” The measure applies to taxpayers 65 and older with incomes below a certain threshold, starting with their next tax filing and running through the 2028 tax year. After that, it is set to expire. AARP supported the tax provision’s inclusion in the legislation.
How is the COLA calculated?
The CPI-W is a measure of changes in prices for a selection of goods and services, including food, energy and medical care, that is reported monthly by the BLS. It is a subset of the Consumer Price Index for All Urban Consumers (CPI-U), which tracks a broader range of retail prices and is considered the “headline” number in measuring inflation. (That main index increased 2.9 percent year over year in August.)
To calculate the COLA, the Social Security Administration compares the average CPI-W for the third quarter of each year to the figure for that same period the year before.
From 2001 through 2020, the COLA averaged about 2.2 percent. If there is no inflation, there’s no COLA — that happened in 2009, 2010 and 2015. The biggest adjustment ever was 14.3 percent in 1980.
In 2024, the CPI-W rose 2.9 percent in July, compared with the prior year, then 2.4 percent in August and 2.2 percent in September. Over the full quarter, the index was 2.5 percent higher, on average, than for the same period in 2023.
Social Security benefits can lag inflation during periods of price volatility, leaving some beneficiaries struggling to make ends meet. For example, beneficiaries temporarily lost buying power in 2021, when the 1.3 percent COLA — based on low inflation in 2020 — was outpaced by surging consumer prices during the COVID-19 pandemic.
That pattern repeated in 2022, when benefits increased by 5.9 percent but inflation reached a 9 percent peak. The following year’s COLA of 8.7 percent helped beneficiaries catch up.
Do you need an attorney to handle your Estate Planning, Probate, Special Needs, or Medicaid/Medicare issues? Find a qualified member of the Ohio Chapter of the National Academy of Elder Law Attorneys in the Ohio NAELA Directory.