How Companies Manage Price Increases When Costs Keep Changing

1. What’s Happening Globally Right Now

Supply Chains Still Adjusting

Supply chains are still not back to the old “normal.”
The pandemic created bottlenecks, and more recent events (logistics shifts, labor shortages, port congestion) continue to affect how goods move around the world.

Companies are facing longer lead times for critical inputs, and transportation costs are still unpredictable. This makes it hard to forecast costs accurately.

Inflation Hasn’t Gone Away

Inflation is not as high as in 2022 and 2023, but prices for energy, raw materials, and services remain above long-term averages in many regions.

This means:

• Input costs remain higher than before

• Wage pressure continues in many sectors

• Forecast accuracy is lower than usual

Tariff and Trade Policy Changes

Many countries are using trade policy as part of economic and security strategy. Tariffs and trade barriers are shifting unpredictably.

Tariffs:

• Increase costs for imported inputs

• Make companies rethink where to source

• Create uncertainty in planning

Geopolitical Shocks

Events like rising tensions or conflicts (for example in the Middle East, including Iran) raise risk premiums in energy, logistics, and finance. Even if these events don’t shut down supply, they change expectations and behavior.

This means companies must factor risk and uncertainty into pricing.

2. How This Affects Pricing Decisions

When companies set prices at the beginning of the year, they are thinking about:

Costs Are Less Predictable

Inaccurate cost forecasts mean pricing must be flexible rather than fixed. Many companies are moving away from a one-time annual price to dynamic or quarterly reviews.

Risk Premiums Must Be Included

Companies are no longer pricing only for cost + margin. They are now including a form of risk or buffer for:

• Tariff changes

• Supply delays

• Commodity price volatility

• Currency fluctuations

• Geopolitical events

In short, pricing includes contingency allowances, even if only informally.

Demand Sensitivity Matters More

In inflationary or uncertain economies:

• Buyers are more sensitive to price changes

• Discounting to protect sales volume becomes a strategy

• Value communication becomes essential

This means pricing is not just about covering cost, but about perceived value and strategic positioning.

3. Risk Factors Every Leader Should Monitor

Here are key external risks that continue to shape pricing decisions:

Inflation and interest rates

Even modest inflation requires regular review of pricing and margins.

Tariff volatility

Tariffs can change with little warning. Many firms now include tariff impacts in quarterly planning.

Energy price swings

Energy affects transportation and production costs globally.

Geopolitical risk

Conflict zones or political instability in key regions increase risk premiums.

Exchange rate fluctuations

Currency swings can push export and import costs up or down quickly.

A Simple Way to Handle Cost Increases

When costs go up, the goal is not to react fast, but to react wisely. Instead of automatic price increases, cost changes should trigger a review. Prices can then be adjusted step by step, explained clearly, and reviewed regularly. This helps protect margins and customer trust at the same time.

• Review prices only when clear cost triggers are met

• Avoid automatic or one-time large price increases

• Adjust prices gradually over time

• Review prices in planned cycles

• Treat different customers and contracts differently

• Explain price changes clearly

• Build small buffers to reduce frequent changes