Social Security's 2027 COLA Should Be Among the Largest in 35 Years, Thanks to Trumpflation and a First-of-Its-Kind Catalyst

One of the most anticipated days of the year for Social Security's more than 71 million traditional beneficiaries is nearly here. On Wednesday, Oct. 14, at 08:30 a.m. ET, the U.S. Bureau of Labor Statistics will publish the September inflation report and provide the final puzzle piece needed to calculate Social Security's 2027 cost-of-living adjustment (COLA).

Social Security's COLA is the near-annual raise passed on to beneficiaries to combat inflation (rising prices). If benefits didn't adjust for rising prices, Social Security income would lose buying power over time.

Social Security's 2027 raise should be among the largest in 35 years, according to independent estimates. After the release of the August inflation report, The Senior Citizens League, a nonpartisan senior advocacy group, and Mary Johnson, a Social Security and Medicare policy analyst, both adjusted their 2027 COLA projections to 3.5%. This would match the sixth-largest raise since 1993.

This marks the second consecutive year in which President Donald Trump's policies have raised consumer prices. Image source: Official White House Photo by Joyce N. Boghosian, courtesy of the National Archives.

Outsize increases to Social Security checks reflect the significant external forces currently lifting consumer prices (i.e., raising inflation). Two catalysts, one of which has never been observed before, are responsible for next year's supercharged COLA.

Trumpflation

For a second consecutive year, Trumpflation (inflation driven specifically by President Donald Trump's policies) is increasing consumer prices and directly boosting Social Security's COLA.

Last year, it was the president's tariff and trade policy that did the heavy lifting. Trump's "Liberation Day" tariffs included a sweeping global duty and higher reciprocal tariffs on dozens of countries. Even though the U.S. Supreme Court invalidated these tariffs in February 2026, the tariffs had already increased consumer prices and led to a modestly higher 2026 COLA.

New from the New York Fed: "By February 2026, tariffs had contributed 2.9 pp to goods price inflation, and without them goods prices would have fallen slightly." About one quarter of every point in higher tariff rates shows up in consumer prices within one year. • A 10% across-the-board tariff yields a 2.6% rise in consumer goods prices after one year. • About two thirds of the increase comes from pricier imports, which get passed through quickly. • Another third comes from U.S. made goods, as producers face higher input costs and less import competition. This takes longer, about 6-12 months, to filter through.

— Nick Timiraos (@NickTimiraos) October 6, 2026

In July 2026, the Trump administration introduced a new round of sweeping global tariffs under a different justification. Applying duties to select goods risks increasing domestic manufacturing costs, which are then passed on to consumers.

This time, it's the Trump-led Iran war that's primarily boosting inflation. Iran's closure of the Strait of Hormuz has led to the largest energy supply disruption in modern history. Soaring fuel prices pushed the annualized inflation rate to a three-year high of 4.2% in May.

Image source: Getty Images.

The AI infrastructure build-out

Whereas Trumpflation is something we've seen before, Social Security's 2027 COLA is also being directly influenced by the artificial intelligence (AI) infrastructure build-out for the first time.

In June, the Federal Reserve began referring to the impact of the AI data center build-out as inflationary. While the insatiable demand for graphics processing units (GPUs), rack servers, high-bandwidth memory, and storage solutions has been a boon for investors in AI hardware stocks, the otherworldly pricing power that these businesses are enjoying is having the opposite effect for consumers.

The AI boom is transforming one of the biggest deflationary forces into a key source of US inflation: Import prices for computer and electronic products surged +7.4% in the first 6 months of 2026, to 77.1 points, the highest since January 2016. This also marks a +8.0% YoY jump, the largest annual increase on record. This represents a historic reversal from a downtrend which persisted for over two decades. Between 2006 and 2019, computer and electronic product import prices fell -30%, as improving technology and manufacturing efficiency consistently pushed costs lower. Now, the AI investment boom is straining manufacturing capacity for semiconductors, servers, and electronic components, as companies race to build out AI infrastructure regardless of cost. The AI revolution has flipped technology from a long-term source of deflation into a major driver of inflation.

— The Kobeissi Letter (@KobeissiLetter) July 21, 2026

The law of supply and demand says that when demand outstrips supply, prices rise. But it's not just demand that's driving up prices for AI hardware. Persistent supply shortages of GPUs and memory have also afforded AI companies exceptional pricing power.

These higher prices have worked their way downstream, adversely affecting consumers and businesses purchasing laptops, smartphones, and a host of other electronic devices. With no immediate resolution to persistent AI hardware supply shortages, the AI infrastructure build-out is likely to remain inflationary (i.e., push Social Security benefits higher) for the foreseeable future.

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