Will Social Security beneficiaries receive a smaller "raise" than expected in 2027? If one top expert is right, the answer is "yes."

Last month, independent Social Security and Medicare analyst Mary Johnson projected a Social Security cost-of-living adjustment (COLA) of 4.7% for next year. However, Johnson recently slashed her forecast to 3.7%.

Her downward revision has ample justification. But it could also be a mistake.

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A ceasefire that has ceased

Johnson based her lower Social Security COLA outlook on the June inflation report released by the U.S. Bureau of Labor Statistics (BLS) on July 14. The Consumer Price Index (CPI) declined from 4.2% the previous month to 3.5% in June. The inflation metric on which the annual COLA is based, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), also rose 3.5% in June.

The June CPI decline was the largest one-month decrease since April 2020, according to the BLS. Johnson noted in a statement, "This is a significant drop in inflation, and one that we've rarely seen in the June CPI data over the past five years."

There's a simple reason behind the drop: the U.S. and Iran entered a ceasefire, which caused oil prices to fall. This resulted in the energy inflation index declining by 5.7% in June, following increases of 3.9% in May, 3.8% in April, and 10.9% in March.

However, the ceasefire that caused the unusual inflation improvement is no longer in effect. Hostilities have resumed between the U.S. and Iran. And oil prices have again risen.

What your 2027 COLA could be

It's possible that Johnson's estimate of a 3.7% COLA next year could prove to be in the ballpark of the actual figure. The Senior Citizens League (TSCL), a nonprofit organization that advocates for seniors, projects a similar COLA of 3.8%.

However, those forecasts could also be overly optimistic. There's a real chance that the conflict between the U.S. and Iran could continue for months.

Importantly, the increase in oil prices hasn't been as significant as it could have been. Both the U.S. and China have dipped into their strategic reserves for different reasons. The U.S. has increased exports, while China has used its stockpile internally.

But such artificial support of oil prices can only be sustained temporarily. Morgan Stanley (MS -0.33%) commodities analyst Martijn Rats believes that the U.S. could feel the pressure to stop using its strategic reserve sooner than China will.

If the U.S. and/or China reach the point where they can no longer draw down their reserves, oil prices would likely soar -- and so would inflation. We could very well see an actual 2027 Social Security COLA close to Johnson's previous projection of 4.7% in this scenario, which would reflect the highest increase in four years.

The waiting game

To be sure, any COLA forecasts are premature for now. We won't know the actual Social Security benefits increase until mid-October, after the September inflation data is available. That's because the Social Security Administration uses only third-quarter CPI-W numbers in its annual COLA calculation.

However, the COLA could be higher -- and perhaps much higher -- than Johnson's current projection of 3.7%. July and August are peak months for the summer driving season, when gasoline prices often exert significant upward pressure on inflation metrics. With a resumption in hostilities by the U.S. and Iran, gasoline prices could remain elevated through the rest of the summer.

Johnson, TSCL, and any other prognosticators could soon find themselves having to revise their Social Security COLA estimates upward. Meanwhile, the 75 million Americans whose January benefits depend on what happens next find themselves in the midst of a waiting game.