When inflation numbers are released, most of the coverage focuses on consumers.
What does this mean for grocery prices? Gas? Housing? Interest rates?
Business owners should be asking a different question:
What is happening to my margins?
The latest Producer Price Index gives you a good reason to ask.
The Bureau of Labor Statistics reported that producer prices increased 0.4% in August and were 5.4% higher than a year earlier. Prices for final-demand goods increased 1.1% during the month.
I’m less interested in debating what one month’s inflation report means for the overall economy than in what business owners should do when their costs start moving.
The first thing I would do is pull the income statement.
Revenue Can Hide a Problem
One mistake I see businesses make is focusing too heavily on revenue.
Revenue can increase while the underlying business becomes less profitable.
Imagine a company increases sales from $5 million to $5.5 million. On the surface, that’s 10% growth.
But suppose its gross margin falls from 35% to 30%.
At $5 million and a 35% margin, the company generates $1.75 million in gross profit.
At $5.5 million and a 30% margin, it generates $1.65 million.
The business grew revenue by $500,000 and actually produced $100,000 less gross profit.
That’s why I would rather understand the quality of the revenue than simply celebrate growth.
Inflation can accelerate that problem.
Don’t Wait Until the Cash Is Gone
Businesses often respond to financial problems too late.
Cash gets tight, and then management starts looking for financing.
But financing doesn’t solve an unprofitable business model. In some cases, it simply gives the company more time to continue losing money.
If costs are rising, management should examine the problem while options remain.
Start with gross margin.
Compare it month to month and against the same period last year.
Then determine what changed.
Was it materials?
Labor?
Freight?
Supplier pricing?
Discounting?
Product mix?
Overtime?
Waste?
You can’t fix “inflation.” You can address individual expenses and decisions.
Pricing Should Be Deliberate
The obvious response to rising costs is to raise prices.
Sometimes that’s exactly what should happen.
But simply adding 5% to every price isn’t a strategy.
I’d want to know which products and services generate the strongest margins, which customers are most price-sensitive, and where the business actually has pricing power.
Some companies discover they are underpricing their most valuable offering while carrying products or customers that barely contribute to profitability.
Inflation can expose problems that were already there.
Look at Purchasing and Inventory Too
Pricing isn’t the only lever.
If you’re buying significant amounts of inventory or materials, supplier relationships deserve another look.
Can volume be consolidated?
Can terms be renegotiated?
Are you carrying unnecessary inventory?
Are employees ordering reactively rather than strategically?
Are multiple departments buying similar products from different suppliers?
None of those changes will make headlines, but together they can meaningfully affect cash flow.
Revisit Your Assumptions
If you created a 2026 budget assuming certain material, labor, or financing costs, those assumptions may no longer be valid.
That’s okay.
A budget isn’t supposed to predict the future perfectly. It’s supposed to provide a benchmark against which reality can be measured.
The mistake is continuing to operate from assumptions that you already know are wrong.
Update the forecast.
Run several scenarios.
What happens if costs increase another 3%?
What if revenue remains flat?
What if customers resist another price increase?
What if borrowing costs don’t decline as quickly as expected?
Those aren’t pessimistic questions. They’re management questions.
The Number I’d Watch
If I owned an operating business today, I wouldn’t spend much time predicting the next inflation report.
I’d watch my gross margin.
National statistics can tell you what’s happening to the economy.
Your margins tell you what’s happening to your company.
And ultimately, that’s the number you have to manage.
Source: U.S. Bureau of Labor Statistics, Producer Price Index, August 2026.
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