A significant gap has emerged between producer prices and consumer prices, with producer prices rising 6.3% in the year to September 2026, outpacing the 3.7% increase in consumer prices. This disparity suggests that companies are absorbing the difference, rather than passing on the costs to consumers.
The gap between producer and consumer prices is a key indicator of profit margins, which are currently at record highs. Further up the supply chain, the pressure on companies is even greater, with processed goods for intermediate demand rising 14.1% and unprocessed goods rising 21.5%.
This increase in costs has not yet been fully passed on to consumers, which could potentially squeeze profit margins in the future. Historically, when producer inflation has outpaced consumer inflation, profit margins have often fallen. After-tax corporate profits have reached a record 13.1% of GDP, and third-quarter earnings are tracking 30% growth.
However, with real hourly earnings down 0.7%, consumers may not be able to absorb higher prices, which could limit companies' ability to pass on costs and maintain profit margins. The widening gap between producer and consumer prices is a signal that profit margins may be at risk.