Social Security COLA Estimate for 2025 Drops Again to 2.5% on Cooler Inflation

The Social Security cost-of-living adjustment, or COLA, for 2025 is likely to be 2.5%, 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, according to an estimate provided by the independent Social Security expert Mary Johnson, but it would still be the lowest for beneficiaries since 2021.

“The 2025 COLA will be the lowest received by Social Security beneficiaries since 2021, at the same time inflated prices persist on key essentials such as housing, meats, auto insurance, any type of service and repairs,” Johnson said.

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) increased 2.4% during August from 12 months ago, down from a 2.9% increase measured in July, showing the annual rate of inflation continues to trend downward.

As a result, the COLA projection dropped again over the past month.

Beyond the effect on the COLA projection, the dip in inflation should provide additional incentive for the U.S. Federal Reserve to cut interest rates this month.

Johnson cautions that the final COLA for 2025 could be slightly 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.

August 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% during August on a seasonally adjusted basis. That’s the same increase as in July.

Over the last 12 months, the all items index increased 2.5% before seasonal adjustment. The index for shelter rose 0.5% in August and was the main factor in the all items increase.

The food index increased 0.1% in August, after rising 0.2% in July. The index for food away from home rose 0.3% over the month, while the index for food at home was unchanged.

The energy index fell 0.8% over the month, after being unchanged the preceding month. For the full year ending in august, the energy index decreased a full 4.0%.

The index for all items less food and energy rose 0.3% in August, after rising 0.2% the preceding month.

Indexes that increased in August include shelter, airline fares, motor vehicle insurance, education and apparel. The indexes for used cars and trucks, household furnishings and operations, medical care, communication and recreation were among those that decreased over the month.