Social Security recipients are likely to get their first clear read on next year’s cost-of-living adjustment after the release of July inflation data on Aug. 12. The U.S. Bureau of Labor Statistics will publish the Consumer Price Index for July, a key input into the annual COLA calculation that is designed to track inflation over the third quarter of the prior year.
With consumer prices still running higher than many retirees would prefer, expectations for the COLA will hinge on whether July inflation cools or reaccelerates—particularly because markets and policymakers remain focused on the inflation trend rather than any single monthly print.
Key takeaways
- What to watch: Aug. 12 brings the July CPI release, the first major data point affecting next year’s Social Security COLA.
- Likely direction: Analysts currently expect the CPI-U (a closely watched inflation gauge) to come in at 3.4%.
- Why it matters: Social Security uses CPI-W, a measure that adjusts for spending patterns of urban wage earners and clerical workers; both CPI variants typically move together.
- Implication for retirees: Current forecasts suggest a COLA around 3.7% to 3.8%, but updated CPI data could meaningfully shift the outcome.
What drives Social Security’s COLA calculation
Social Security’s annual cost-of-living adjustment is based on the average inflation increase in the third quarter of the prior year. That means July, August, and September data are the only months that feed into the final COLA figure for next year.
Even though inflation spiked earlier in the year—during March, April, and May—retirees’ benefit updates depend on the later quarter’s CPI readings. As a result, Aug. 12 is the first checkpoint that could confirm whether inflation is continuing to cool or proving stickier than expected.
Market expectations for July CPI
For investors monitoring the retirement-income backdrop, the July CPI report is also a signal for the broader inflation trajectory that the Federal Reserve and markets are tracking. Analysts currently expect the commonly referenced CPI-U inflation measure to print at 3.4%.
Social Security does not use CPI-U directly; it relies on CPI-W. While the two indexes are not identical—because CPI-W is tailored to a specific population’s spending patterns—their readings generally move in the same direction. That linkage makes CPI-U forecasts relevant, but the final COLA can still differ depending on how CPI-W behaves relative to CPI-U.
How projections are shifting ahead of Aug. 12
Prior to the July CPI release, Social Security analysts were already forecasting a COLA higher than the 3.4% CPI-U expectation. The Senior Citizens League expects next year’s COLA to come in at 3.8%, while independent analyst Mary Johnson projected 3.7%.
Those estimates may face adjustment after Aug. 12, especially because inflation forecasts have shown signs of easing. The Federal Reserve’s NowCast project cited in the report indicates August CPI growth slowing further to 3.2%, suggesting next year’s COLA could end up below what some analysts were projecting last month.
Even so, the report notes that retirees could still receive one of the larger COLAs in roughly the past 15 years, given that COLAs above 3% have occurred only three times since 2012 (during 2022 through 2024). With the third quarter still unfolding, the final COLA will ultimately reflect the average of the July–September readings, meaning additional CPI prints can either reinforce or undermine current expectations.
What investors and retirees should watch next
The immediate focus is the Aug. 12 CPI release, but the broader inflation picture will be shaped by what follows in August and September. If subsequent readings show further cooling, it could reduce the projected COLA for next year; if inflation reaccelerates, it could raise the final adjustment even after an initial July print.
Retirees who are budgeting around potential benefit increases may want to prepare for a range of outcomes once the July data becomes available, since even modest changes in inflation can translate into different COLA results.
