Good news, if you’re retired: Social Security just locked in its biggest raise in 40 years.

On Wednesday, the Social Security Administration announced that nearly 72 million Americans will get a 3.6% cost-of-living adjustment (“COLA”) starting in January. Social Security benefits have risen 26% since 2021 – the biggest five-year increase since the end of America’s last great inflation, 1982-1986.

And these enormous increases to the government’s costs are just getting started. We are not at the end of a great inflation – we’re only at the very beginning.

This week the Labor Department reported that producer prices rose 6.3% over the past year, led by higher energy prices. Brent crude oil, the global energy benchmark, is up 73% this year. Wholesale diesel has more than doubled.

America buying diesel from Russian President Vladimir Putin is a sign. Energy costs aren’t going to come down anytime soon. These much higher input costs will flow through to higher consumer prices over the next several months. Meanwhile, September was the 67th straight month – that’s going back to early 2021 – that consumer inflation ran above the Federal Reserve's 2% target.

If energy costs were the only issue, maybe we wouldn’t be facing such a serious problem. But energy is only the beginning. Strip out energy, and producer prices still rose 4.7% over the past year. Strip out food, energy, and retail markups, and they rose 5.0%.

What we’re seeing is a monetary phenomenon. The Fed has printed trillions of dollars over the past seven years. And the government continues to spend vastly more than it brings in in taxes. This is monetary inflation, not a failure of the markets or the outcome of a war.

And the worst of it has not reached us.

In September alone, crude oil prices jumped 28.3%. Over the past year, the raw materials American businesses buy rose 21.5%, and the processed materials and parts they need rose 14.1%. Those costs take months to work through supply chains, even if the price of oil stops rising. They will show up in the consumer prices that will set the COLA for Social Security in January 2028. By that point, the annual increases will be 6% or higher.

But these soaring cost-of-living adjustments aren’t the real threat to Social Security.

The real problem is how every business in America is going to react to rapidly rising input costs. They’re going to cut whatever costs they can to maintain their margins. More and more, that will mean replacing expensive white-collar employees with AI solutions.

And you should know, Social Security only has one real source of funding: a 12.4% tax on wages, split between workers and employers. The system’s surplus and its resulting interest income is almost gone. The current payroll tax supplies more than nine of every 10 dollars the program takes in.

So as long as paychecks grow faster than prices, the system works. But sustained inflation above 4% breaks the system.

How do I know?