With millions of retirees anticipating next year’s cost-of-living adjustment (COLA) to Social Security benefits, economic developments driven by tariffs under President Donald Trump might yield a welcome surprise. Tariffs imposed by the Trump administration in recent months on imports—primarily steel, aluminum, and many Chinese products—have applied upward pressure to consumer prices. Because the yearly COLA is directly tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), higher prices this year could lead to a greater benefit increase for Social Security recipients in 2026.
How COLA is calculated
Social Security COLA is determined by comparing the CPI-W for the third quarter of the current year (July to September) to the third quarter of last year. If inflation exists, beneficiaries receive an equivalent percentage increase in their monthly payment. The change is intended to protect against retirees losing purchasing power when inflation erodes the purchasing power of a fixed income.
Tariffs and inflation
Since January of 2018, the Trump administration has imposed tariffs on roughly $360 billion worth of Chinese imports, tariffs on all steel and aluminum trading partners. The stated reason was to protect domestic manufacturers and reduce trade deficits. Tariffs actually function essentially as a tax on imports, raising the cost to American businesses that employ foreign inputs and then passing it on to consumers at the point of purchase.
The impact on CPI-W
A few of the broad CPI-W categories have suffered the most from high import prices:
- Food at home and away from home: Import tariffs on farm machinery and foodstuffs have percolated through, contributing small increases to prices in supermarkets and restaurants.
- Apparel and household furnishings: Fashion, textiles, and household furniture are often based on Chinese manufacturing; tariffs here have pushed retail costs higher.
- Vehicles and parts: Aluminum and steel tariffs have increased producers’ costs of production, which have led to higher new and used vehicle costs.
Because these products are significant drags on the CPI-W basket, steady increasing costs from tariffs to the third quarter could push the index up by nearly 3 percent year-over-year.
Estimated COLA increase
Economists and proponents of older Americans have estimated that the 2026 COLA could be in the 2.7 percent to 2.9 percent range—far higher than most had envisioned before tariffs took full effect on consumer prices. At a 2.9 percent increase, the average retiree would receive an extra $44 a month on the Social Security benefits they collect at $1,500. For maximum benefit recipients—currently about $3,700 a month—the boost could mean nearly $108 more per month. In a year, these boosts could add up to hundreds or even over a thousand dollars in extra income for retirees and disabled beneficiaries.
Benefits to household budgets
For the roughly 70 million Americans who rely on Social Security for all or some of their income, even a modest COLA boost can help mitigate financial strain:
- Medical treatment and prescription medications: Health-care costs increase faster than general inflation. A higher COLA pays for rising premiums, co-pays, and out-of-pocket expenses.
- Housing and bills: Rent and power bills have increased over recent years, especially in urban areas. Additional Social Security can help alleviate the pressure of rent and electricity bills.
- Everyday necessities: Food, personal items, and transportation costs all benefit from an inflation-indexed increase, preserving retirees’ purchasing power.
Political and economic trade-offs
Although retirees may welcome an enlarged COLA, tariff-induced inflation has detrimental effects. All shoppers, regardless of age, pay higher grocery bills and added manufacturing costs that slow economic expansion overall. Critics argue that tariff-induced inflation is a tax burden on American families and disproportionately affects lower-income families who spend a larger percentage of their budget on necessities.
Also, Social Security operations guarantee that COLAs lag behind price increases. It will be January, next year, before retirees get to appreciate the higher prices, resulting in a temporary tightening in household budgets before adjustment is applied. For more information on the COLA increment, read this article, Will there be an announcement about the COLA adjustment on October 15? What is known about the possible delay in Social Security check.
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