Social Security COLA Estimate for 2025 Drops to 2.6% as Inflation Falls
In July, the lowest 12-month inflation since 2021 pushed down the projected retirement benefit increase for next year.
The Social Security cost-of-living adjustment, or COLA, for 2025 is likely to be 2.6%, based on the latest consumer price index data, released Wednesday.
The prospective COLA for next year would be about average for the last two decades and the lowest since 2021, according to an estimate provided by the independent Social Security expert Mary Johnson.
The 2024 cost-of-living adjustment for Social Security beneficiaries was 3.2%.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) rose 2.9% in July from 12 months ago. That’s level with the inflation trends indicated last month based on June inflation data, but it brought the annual pace of inflation down.
As a result, the 2025 COLA projection dropped again over the last month, falling from 2.7% to 2.6%.
Johnson cautions that the final COLA for 2025 could be different from the current estimate. This is because the COLA is calculated on the average rate of inflation during the third quarter, which is then compared against the third quarter a year ago.
July Inflation Highlights
As reported by the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers — a broader measure of inflation than the CPI-W — increased 0.2% in July on a seasonally adjusted basis, after falling 0.1% in June.
While inflation ticked up slightly in July, the all items index rose only 2.9% for the 12 months ending in July — the smallest 12-month increase since March 2021. The all items less food and energy index rose 3.2% in that time, which marks the smallest 12-month increase in that index since April 2021.
The energy index increased 1.1% for the 12 months ending July. The food index increased 2.2% over the last year.
The index for shelter rose 0.4% in July, accounting for nearly 90% of the monthly increase in the all items index. The energy index was unchanged over the month, after declining in the two preceding months.
The index for food increased 0.2% in July, on par with the rate measured in June. The food away from home index rose 0.2% over the month, while the food at home index climbed 0.1%.
The index for all items less food and energy rose 0.2% in July, after rising 0.1% the preceding month.
Overall, indexes that increased in July include shelter, motor vehicle insurance, household furnishings and operations, education, recreation and personal care. The indexes for used cars and trucks, medical care, airline fares and apparel were among those that decreased over the month.
Credit: David Palmer/ALM