Get Ahead of the Coming Inflationary Environment

We are in a bit of a relative lull as far as pricing pressures are concerned. US Producer Prices have generally vacillated near the current level since around mid-2022. Anecdotally, some of our clients have reported implementing relatively few or even no price increases this year.

The lull will end soon enough. Our forecast has producer inflation picking up again around mid-2025. Demographic trends suggest that inflation will then be a factor for the rest of the 2020s.

• Our aging workforce means that the labor market will remain relatively tight, with skilled workers in relatively high demand, for the rest of the 2020s.
• This labor market tightness will put upward pressure on wages.
• Wage inflation will contribute to overall producer inflation.
• We expect inflation levels that are elevated relative to the 2010s but not the extremes that arose post-COVID stimulus.

At ITR Economics, we see the future first so that you can get in front of upcoming trends. This also applies to pricing trends. In order to get ahead of the competition, you will need to understand whether pricing in your industry trends well with overall US Producer Prices, or with a different pricing indicator. We can help with that. Knowing what pricing trend to follow allows you to better plan inventory, time price increases, and determine how much you will need to raise prices.

If you are expecting higher input costs, as measured by a price indicator, then think carefully about your customers. Passing higher input costs on to customers can be challenging because nobody is ever happy to see their costs go up. You will likely need to factor in not just your input pricing pressures but your competition’s pricing strategy so you do not lose market share by raising prices without justification.

We can help you determine when input prices are likely to change and by how much. In the meantime, there are actions you can take to help ease the impact on your customers and avoid competing solely on price:

• Make sure you are clearly communicating your competitive advantages. These are the things you provide that your competitors do not, even if your core products or services are essentially the same – what sets you apart.
• If there is a way that your product or service will ultimately save your customer money over the longer term, be ready to articulate that, and be as specific as possible, down to how many dollars will be saved over what length of time.

Avoid reacting to the market like your competitors. While your competitors are scrambling to catch up with inflation, you will be touting your competitive advantages, and you will have advanced warning to better plan your next pricing-related moves.