Each year, Social Security benefits are adjusted to account for the effects of inflation. This adjustment is known as the Cost Of Living Adjustment, or COLA and it is implemented in order to help maintain the buying power of the monthly benefit that millions of vulnerable Americans are reliant on.
On a surface level, any sort of increase to your monthly benefit amount will be welcomed, however, a higher COLA makes for a rather nuanced situation in the grander scheme of things. Since the COLA is determined using inflation data, a higher COLA would essentially mean that the cost of things has increased as well.
Earlier this year, President Donald Trump imposed sweeping tariffs on all goods entering the country. Now, experts are fearing that the effects of these tariffs will likely heighten inflation rates and subsequently, the COLA for 2026 will also be higher than current estimates.
Here is what you need to know.
How is the Social Security COLA calculated?
The COLA for the upcoming year is announced in October. It is calculated using the third quarter (July, August, and September) data of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) which is released by the Bureau of Labor Statistics. The third quarter CPI-W of the current year is compared to the CPI-W of the previous year and if there is an increase, this percentage becomes the COLA for the upcoming year.
As things currently stand, however, a higher COLA could spell more trouble for the Social Security trust fund as it is already facing financial pressure with a shortfall projected within the decade according to the latest report from Social Security trustees. According to Kathleen Romig of the Center on Budget and Policy Priorities, “Higher inflation leads to higher Social Security cost-of-living adjustments (COLAs), which increase the program’s costs and reduce trust fund solvency. And if they end up slowing the economy, that will also reduce trust fund solvency.”
The nonpartisan Senior Citizens League’s has predicted the 2026 COLA to be 2.5% based on May’s CPI-W data. However, if Trump’s tariffs causes inflation to surge, the COLA could shoot up with it.
Tariff talk
Whilst there had been some back and forth regarding exactly how high the newly imposed, “reciprocal” tariffs would be at the beginning of the year, it appears that 10% has since held steady for most countries — aside from China.
In a research note, Aichi Amemiya, senior economist at Nomura wrote, “We believe the limited impact from tariffs in May is a reflection of pre-tariff stockpiling, as well as a lagged pass-through of tariffs into import prices. We maintain our view that the impact of tariffs will likely materialize in the coming months,” as reported on by CNBC.
“The Trump Administration has engaged in a chaotic and haphazard tariff scheme since taking office, placing tariffs on over 70 countries and on specific products. The tariff rate has not been consistent, fluctuating on a sometimes weekly basis,” Romig also noted.
The tariff rate on China is currently 55% after a deal was eventually reached between the two nations, whilst tariffs on Vietnam could go as high as 25%. These tariff rates are significantly lower than the rates that had initially been imposed by Trump, however, these rates could still be considered historic as they are the highest they have ever been in modern history.
Joseph Brusuelas, chief economist at RSM writes in a research note that, “Recent data shows higher prices for products frequently imported, such as canned fruits and vegetables, coffee, tobacco, durable goods, and some major appliances.” Additionally, “the price spikes in appliances mirrored those seen in 2018-2020 when President Trump last levied tariffs during his first administration,” as per CNBC.
As such, there is no guarantee that the COLA will surge significantly as a result of these tariffs. This is because the CPI-W for the year so far has been on a soft decline starting at 3% in January and landing at 2.2% for May. The COLA for 2026 will officially be announced later this year, in October.