U.S. Businesses Have Largely Stopped Absorbing Rising Costs and Are Increasingly Raising Prices for Customers
The breaking point
U.S. businesses have largely stopped absorbing rising costs and are increasingly raising prices for customers, per WSJ.
The most recent inflation data made clear that prices are still rising far too quickly. The open question for business owners is whether high energy costs are a temporary nuisance to wait out or a long-term reality that calls for price increases now, and more of them are answering: now.
Melissa Florio and her husband own Ambix Manufacturing, which sells plastic components to power distribution companies. For months she expected surging costs to settle down and kept prices low. But oil kept driving up the price of resin, and she no longer views President Trump's Iran war as a temporary shock. This summer she hiked prices between 10% and 21% across all of Ambix's products, which include plastic insulators for high-voltage transmission wires.
"We reached the breaking point," she said. "We're not eating that cost any longer."
Two camps, one direction
Other businesses are still holding prices down, betting they can beat competitors and keep cost-conscious customers, with margins recovering when inflation recedes. But the survey data is moving the other way.
A KPMG survey found 55% of retailers planning price hikes this year, and the share of businesses passing on more than half of their tariff costs to consumers has risen to 34%, double the rate seen last spring. Some retailers plan increases of up to 15% within six months.
Earlier Federal Reserve survey data showed how long the absorption phase lasted: two-thirds of companies saw production costs rise on the energy shock, but only one-third passed those increases on to consumers. That gap is what is now closing, just as import prices post their largest annual gain in more than four years.
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Options market and stocks to watch
Pass-through pricing is the mechanism that turns a cost shock into persistent inflation, and it lands directly on the rate path. If companies keep raising prices, the Federal Reserve's hiking bias stays alive, which keeps pressure on rate-sensitive corners of the market and supports implied volatility in SPY and QQQ around inflation prints.
On the equity side, the split is between companies with pricing power and companies without it. Watch consumer names that have already shown they can raise prices, like LEVI in apparel, against margin-thin retailers in XRT. Gold miners and GLD stay on the inflation-hedge watchlist, and bond proxies like TLT will move first if pass-through shows up in the next CPI print. Track it all on the Unusual Whales news feed.
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