New inflation data surprises Wall Street - here's what it means for Social Security uplifts for next year

The Social Security Administration has announced a 2.5 percent cost-of-living adjustment for 2025 for more than 72.5 million Americans.

The cost-of-living adjustment, or COLA, is the yearly increase to monthly Social Security benefits that millions of seniors rely on.

The uplift will increase the average retired workers' benefit by $48, to $1,968 a month.

The Social Security Administration confirmed the change on a post on social media site X, following the announcement of the inflation data for September.

Both investors and the Fed were hoping for some reassurance about the Fed's decision to kick off its rate-cutting cycle with a 50 basis point reduction, Bret Kenwell, US Investment Analyst at eToro, said in a statement.

'We didn’t get that.

'The latest CPI figures are hardly a disaster, but after a far stronger-than-expected jobs report last week, many are questioning the Fed's decision to cut by 50 basis points last month.

'The two reports have all but taken another 50 basis point cut off the table next month, while some could argue that it rules out a rate cut of any kind in November,' he said.

Today's inflation figures should not set any alarm bells ringing, said Lindsay James, investment strategist at Quilter Investors, but 'clearly large risks remain on the horizon.'

'Conflict in the Middle East continues to threaten to send oil prices much higher and provide fresh inflationary concerns, while the recent hurricane damage in the US is likely to make data a little harder to collect and analyse for the Fed,' she said.

'As has been stressed heavily, cautious steps will be taken to bring rates down to a sustainable level, without troubling the wider economy.'

She added that core inflation, which is a measure of inflation that strips out the volatile sectors of food and energy, increased to 3.3 percent in September.

But this 'is unlikely to stand in the way of further rate cuts in November, having come down from 3.9 percent at the start of the year,' James said.

After a bumper half percentage point cut in September, the Fed is expected to continue cutting interest rates, but the pace and degree remain in question.

Central bank policymakers have shown increasing confidence that inflation is beginning to slow toward their 2 percent target.

Despite the fact the inflation reading for September was higher than forecasts, analysts are predicting that the Fed will cut rates again at its next meeting in November - but by a smaller amount.

According to the CME Group's FedWatch tool, markets are predicting an 86 percent chance of a quarter percentage point cut at the meeting next month.

This will make borrowing money less expensive, taking some of the pressure off consumers' wallets.

'The readings put to bed the possibility of another supersized cut at the Fed's next meeting in November,' said Isaac Stell, Investment Analyst at Wealth Club.

Wall Street's main indexes fell at the open on Thursday, after consumer price index data showed inflation was higher than expected in September.

The Dow Jones Industrial Average fell 84 points, or 0.14 percent, at the open, while the S&P 500 fell 13.7 points, or 0.24 percent.

The Nasdaq Composite also dropped 91.0 points, or 0.5 percent, at the opening bell.

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Nonpartisan group The Senior Citizens League (TCSL) has branded the COLA uplift 'disappointing,' following the announcement of a 2.5 percent rise in benefits.

The group said that the measure by which the yearly increase is calculated fails to measure inflation as seniors experience it.

TCSL Executive Director Shannon Benton said this year represents 'another lost opportunity to grant seniors the financial relief they deserve' by changing the COLA calculation which would 'better reflect seniors' changing expenses.'

She suggested instituting a minimum COLA of 3 percent.

'Our research shows that 67 percent of seniors depend on Social Security for more than half their income and that 62 percent worry their retirement income won't even cover essentials like groceries and medical bills,' Benton added.

Nearly 68 million Social Security beneficiaries will see a 2.5 percent cost-of-living adjustment beginning in January 2025, the Social Security Administration said in a statement.

Increased payments to nearly 7.5 million people receiving Supplemental Security Income (SSI) funds will also start on December 31, 2024, it added.

'Social Security benefits and SSI payments will increase in 2025, helping tens of millions of people keep up with expenses even as inflation has started to cool,' said Martin O'Malley, Commissioner of Social Security.

Some other adjustments that take effect in January of each year are based on the increase in average wages. 

Based on that increase, the maximum amount of earnings subject to the Social Security tax is slated to increase from $168,600 to $176,100.

The Social Security COLA is the lowest yearly increase since 2021, when beneficiaries received a 1.3 percent increase to benefits.

In 2024, there was a 3.2 percent hike, and in 2023 there was an 8.7 percent boost.

The 2023 figure was the highest in four decades in response to record high inflation.

In 2022, benefits increased by 5.9 percent.

Now that the pace of inflation is slowing toward the Federal Reserve's 2 percent goal, the COLA adjustment has come down toward the historical norm.

The benefit increase has averaged around 2.6 percent over the last 20 years, according to nonpartisan group the Senior Citizens League.

Consumer prices were up 2.4 percent from a year earlier in September, according to new data released Thursday by the Bureau of Labor Statistics.

This was higher than expectations, which were for a 2.3 percent annual rate of inflation.

But it was a slowdown from August's 2.5 percent rate.

On a monthly basis, the consumer price index rose 0.2 percent to September - also above economists' forecasts.

Much of the rise in prices was down to food and housing costs, the Labor Department said.