Pricing Strategically in a Persistent Inflation Environment

Rising input costs and sustained producer-side inflation are forcing businesses to reexamine long-held pricing assumptions. With key commodities remaining elevated and little relief forecasted in the near term, margin pressure is becoming a structural challenge, not just a temporary disruption. Organizations that respond proactively will be better equipped to preserve profitability. 

The Current Pricing Landscape

Key commodities, such as copper, are up.

Overall US Producer Prices — a broad measure of producer-side inflation — continue to generally rise, offering no relief following the steep post-COVID ascent.

Our forecasts do not predict significant relief, either. Per our analysis, Copper Prices are expected to stay elevated over at least the next four quarters; overall Producer Prices are forecasted to generally rise through at least 2028.

This is an issue for several reasons:

1. If your business is like others we work with, you may be looking to rebuild margins following concessions made to facilitate top-line growth in 2025.

2. Your margins will need to be strong as the downturn of the 2030s approaches, whether you plan to stay the course or sell.

3. It is simply difficult to build margins in an inflationary environment, particularly when your business may have residual habits and expectations from the generally lower-inflation era of the 2010s.

What You Can Do

Understand your clients.

• Which clients can generally absorb price increases, and which have a harder time? We are seeing large differences in the ability and willingness of consumers and businesses to pay; knowing the data can help you target customers more selectively.

• Be prepared with “good, better, best” options that match the level of goods or services you provide with what your client can equitably pay for. Having these options can keep a sensitive client in your ecosystem. If they are willing and able to purchase the “good” level now, they may move up to the “best” level — with faster delivery, more follow-up services, etc. — later.

Ensure your clients understand you.

• Do your clients understand that your prices are going up because your costs are going up, or do they mistake your price changes as an attempt to take advantage of the inflationary environment at their expense?

• Having appropriate input cost data handy — or even a forecast from a firm with 94.7% accuracy at four quarters out — could help here.

• “Ensure your clients understand you” presupposes that YOU understand you. Make sure you are cognizant of all your input costs at the various tiers. ITR Economics can help here; we can help you find the appropriate data, or we can create and forecast a custom price index created specifically for your business.

Know your competitors.

• Are they actually offering lower prices than you can afford to offer? If so, is it sustainable, or will they inevitably crash?

• Are their prices lower because they do not offer a feature or ancillary service that you do?

• Is that “extra” valuable? If so, ensure your client or prospect understands the value of this competitive advantage you have. Perhaps you should leave it out of your “good” tier offerings and introduce it in “better” or “best.”

The Bottom Line

Inflation is here and you will have to deal with it. The more knowledge you have — of the pricing forces impacting your business and how those pricing forces can shape your future — the more power you have. ITR Economics can help.