September Inflation Came In at 3.9%, Helping to Set Social Security's 2027 Cost-of-Living Adjustment (COLA)

We've finally reached arguably Social Security's most anticipated day: the announcement of the cost-of-living adjustment (COLA). The only other day that might compare is the day when the COLA actually kicks in in January.

Beginning next year, Social Security recipients will receive a 3.6% increase to their monthly benefits, 0.8% higher than this year's COLA. A high COLA can be a relief, but it doesn't come without high inflation, as the two unfortunately go hand in hand.

Let's take a look at how we got to this above-average COLA.

The inflation figure Social Security focuses on

The CPI-U is the country's main inflation figure, and in September, it was 3.7% from a year ago. However, Social Security uses the CPI-W to calculate the annual COLA. It's an inflation metric centered on the expenses of hourly wage earners and clerical (administrative) workers, covering about 30% of the total U.S. population.

In September, the CPI-W rose 3.9% from last year, its second-largest year-over-year increase this year, behind May's 4.4% jump.

Image source: Getty Images.

The difference between the CPI-U and CPI-W figures comes down to the weight they give to different expenses, with the CPI-W giving more weight to expenses like rent, transportation, food and beverages, apparel, and fuels and utilities. The CPI-W has been higher than the CPI-U every month since April (they were the same in March).

How inflation has led to the 2027 COLA

The 2027 COLA is the fifth-largest in the past 35 years. This historically high COLA largely reflects rising energy prices amid the conflict in the Middle East. With the closure of the Strait of Hormuz -- the route for around 20% to 25% of the world's oil supply -- prices have shot up. In September alone, here's how much different energy expenses jumped year over year:

• Energy (overall): 20.4%
• Gasoline (all types): 34.2%
• Fuel oil: 74.2%
• Energy services: 4.6%
• Electricity: 4.4%
• Utility gas service: 5%

For those who've had to fill up their gas tanks or pay utility bills, this jump probably isn't that surprising. Inflation briefly cooled in July and August -- CPI-W rose 3.4% and 3.5%, respectively -- but with renewed geopolitical conflict, it accelerated again in September. July and August are noteworthy because the COLA is set based on inflation figures from those months and September (making up Q3).

Social Security takes the Q3 CPI-W average, compares it to the previous year's average, and sets the COLA as the percentage increase, rounded to the nearest one-tenth of a percent. This year's CPI-W average was 3.62% higher than in 2025, resulting in a 3.6% COLA for 2027.

Next year's COLA won't help Social Security recipients with the current inflation pressures they're facing. Still, now that the official figure has been released, recipients can begin planning their 2027 budgets and adjusting accordingly. The COLA likely won't cancel out inflation 1:1, but it's something.

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