Businesses brace for years of inflation as new costs pile up

American businesses are increasingly convinced that higher inflation is here to stay.

Even if Tuesday’s inflation report shows the cooling economists anticipate after a recent easing of gasoline prices, few forecasters or executives expect the relief to last.

Instead of fading, the forces pushing prices higher are multiplying. Tariffs are still grinding through supply chains, the Middle East war is keeping oil markets on edge, and another wrinkle – a boom in artificial-intelligence infrastructure – is driving up the cost of electronic components and electricity.

The result is that prices may rise faster than normal for many months.

“People hate inflation,” said Douglas Holtz-Eakin, president of the conservative American Action Forum. “Right now, we’ve got no real wage growth. That’s a broadly distributed pain that hurts the people who are felt to be responsible – the party in power. So Republicans have to worry about every election while that continues.”

For some smaller manufacturers, the effects of tariffs have proved more persistent than many economists initially expected.

“My biggest heartache is still steel,” said Glen Calder, president of Calder Brothers, a family-owned maker of asphalt-paving machines in Taylors, South Carolina, where the price of steel has roughly doubled in 15 months, to as much as 72 cents a pound from the mid-30s.

“It just keeps climbing,” he said.

Indeed, many companies already plan to keep hiking prices, in response to tariffs, over the coming months. In surveys published last week by the Federal Reserve Bank of New York, nearly half of the firms that paid tariffs said they still expected to raise prices again to make up for tariff costs, some in six months or later. Businesses reported they have been waiting for some previously negotiated contracts to expire, absorbing higher costs in the meantime. And some companies acknowledged they plan to raise prices in deliberate increments to avoid alienating customers.

“[I]n an ever-changing tariff environment, many firms are spreading price increases across extended periods – meaning that inflationary pressures due to tariffs may well last for some time to come,” the researchers wrote.

In Madison, Indiana, John Grote’s 125-year-old family company, Grote Industries, which makes lighting and wiring systems for trucks and trailers, is being hit from nearly every direction at once.

Resin for its molded plastic lenses is tied to oil prices and is up 30 percent to 40 percent. Tariffs have hiked prices for copper, which the company uses in a 53-foot harness system that powers lights, cameras and brakes for trailers. And electronic components have more than doubled as AI data centers bid up scarce capacity.

“We’re getting squeezed,” Grote said. Because his prices can’t be adjusted off-cycle, the company has eaten much of the increase. His profits are down 20 percent to 30 percent, and he expects to raise prices in January.

How long the squeeze lasts is clouded by uncertainty on at least two fronts. The war in Iran remains volatile. The U.S. and Iran exchanged some of their heaviest strikes in months over the weekend, renewing concerns about energy supplies and fuel costs.

Meanwhile, businesses could soon face another round of tariff uncertainty. One set of 10 percent global tariffs, which cover roughly one-third of U.S. imports, is set to expire in late July, leaving businesses unsure what to expect next. The Trump administration is expected to use different legal authorities to replace the expiring tariffs.

Companies are already contending with persistent inflation pressures. Delta Air Lines said Friday that record fuel costs – the highest in the company’s history – weighed on quarterly profits despite a double-digit jump in revenue. Executives said the industry had little choice but to maintain recent fare increases because inflation in both fuel and non-fuel costs remained significant.

Seneca Foods, the canned-vegetable giant, told shareholders last month that last spring’s steel-tariff increases are only now flowing fully into its container costs and have been built into its selling prices, adding that the tariffs “simply cannot be absorbed long term.” The company also noted that prices for canned fruit and vegetables have risen more than 48 percent since 2019, nearly double the pace of fresh alternatives, largely because of tariffed tin.

And Winnebago Industries said its model-year 2027 price increases could reach low double digits for some products, as some of its brands face significantly higher raw-material costs than others.

Some economists argue the inflation pressures run deeper than any single shock.

Even without the conflict in Iran or a trade war, inflation would probably be running well above the Fed’s 2 percent target, said Michael Strain, director of economic policy studies at the right-leaning American Enterprise Institute.

That’s because the economy itself is running hot: Consumer spending remains strong, the government is running massive deficits that pump demand into the economy, and financial markets show little sign that the Fed’s interest rates are biting.

“The Fed thinks it has its foot on the brake pedal,” Strain said, “but it actually has its foot on the gas.”

Andrew Ackerman writes for The Washington Post’s economics team, where he covers how Washington oversees Wall Street. His areas of focus include the Federal Reserve and the way its policies affect the economy and everyday consumers.

Federica Cocco contributed to this report.