The Inflation Your Customers See Isn't the Inflation You Pay

The June inflation report was the best-looking one in years. Prices actually fell 0.4% from May to June, the largest one-month drop since April 2020, and inflation over the past year slowed to 3.5% from 4.2% a month earlier. Most of the coverage ran some version of the same headline: inflation is cooling.

That same month, the National Federation of Independent Business (NFIB) asked small business owners to name their single most important problem. The most common answer was inflation. In the June 2026 Small Business Economic Trends report, 21% of owners picked it, up three points from May, the highest share since October 2024, and the fourth month in a row that number has climbed.

So inflation is falling in the headlines while more owners call it their biggest problem than at any point in almost two years. I don't think either number is wrong. They're measuring different things, and if your margins have felt tighter this year even as the news improved, the difference between them is probably why.

Your customers' inflation isn't your inflation

When the news says inflation is 3.5%, that number measures one specific thing: what families pay for everyday life. Groceries, gas, rent, a haircut. The U.S. Bureau of Labor Statistics builds it from the prices your customers see every week (the official name is the Consumer Price Index), and it's the version of inflation your customers carry in their heads.

What that number does not measure is the cost of running a business. The same agency tracks that separately, by following what companies charge each other for goods and services before anything reaches a store shelf (this one is called the Producer Price Index). Over the same 12 months, that business-side measure rose 5.5%.

Put plainly: the prices your customers watch rose 3.5% last year. The prices your business buys at rose 5.5%. Set aside food and energy, which swing a lot month to month, and the split is starker still, 2.6% on the consumer side against 5.1% on the business side. Business costs rising nearly twice as fast as the inflation everyone talks about.

Your business sits between those two numbers. Your costs track the faster one, while your customers' sense of a fair price follows the slower one they see in their own spending. That's why a price increase that only covers your real cost increases can still feel steep to a customer whose own costs rose more slowly.

In fairness to June, business-side prices dipped that month too, down 0.3%, mostly because wholesale gasoline fell 12%. One good month doesn't unwind a year of increases. The 12-month gap is the one your margins have been living with.

It's also early to call the consumer side settled. The government's other main measure of consumer prices, published by the U.S. Bureau of Economic Analysis, still showed prices up 4.1% for the year through May.

The costs behind your costs

The numbers that look most like your own supplier invoices are buried deeper in that same business-side report. The bureau also tracks what companies pay for the things they buy from other companies to make what they sell: ingredients, parts, packaging, freight, outside services. Those business-to-business prices are the steepest numbers in the report.

For the 12 months through June, prices for processed goods sold to businesses rose 11.1%. Unprocessed goods, the raw materials underneath everything else, rose 13.0%. Services that businesses buy from other businesses rose 5.0%, the fastest 12-month pace for that measure since February 2023.

Energy runs through a lot of this. If you run trucks or equipment, June was a genuine break, with diesel down 18% at the producer level. One month is one month, though. Over the full year, consumer energy prices rose 15.7% and gasoline rose 26.7%.

Price increases are up, and profits are down anyway

Businesses aren't absorbing all of this quietly. In the NFIB's June survey, small business owners raising their prices outnumbered owners cutting them by 38 percentage points, the widest that gap has been since January 2023, and it has widened four months in a row. Over the survey's history, that gap has averaged 14 points.

The raises aren't keeping up. In the same survey, owners reporting lower profits outnumbered those reporting higher profits by 20 points, five points worse than a month earlier. Among the owners whose profits fell, 27% blamed weaker sales and 17% pointed at rising material costs.

The Federal Reserve Banks' 2026 Small Business Credit Survey fills in the rest of the picture. In its report on employer firms, rising costs of goods, services, and wages were the most common financial challenge owners reported over the prior 12 months, and more than four in ten firms said increased costs tied to tariffs were a financial challenge. Retail had it worst at 69%. Manufacturing was close behind at 62%.

That survey also shows what businesses actually do when inputs get more expensive. About half of firms, 48%, sourced at least some inputs from outside the United States in 2024, and most of those firms saw the prices of those inputs rise. Of the firms facing those increases, 76% passed at least some of the cost on to customers and 60% absorbed at least some of it. The numbers add to more than 100 because most firms did both: part of the increase went to the price tag, and the rest came out of margin.

Four things worth doing while the gap stays open

• Reprice by line item, not across the board. The whole point of the June data is that costs are moving unevenly. Fuel fell hard in one month, materials are up double digits on the year, and business services keep grinding higher. A flat increase across everything overcharges customers where your costs eased and undercharges where the damage is. Price each product or service against what it costs you now.
• Shorten how long your quotes stand. If you bid work or quote projects, a price that holds for 90 days is a bet that your input costs hold for 90 days. This year they haven't. Tighter quote windows, or a materials clause for bigger jobs, moves that risk off your books.
• Decide what you absorb on purpose. Most firms in the Fed's survey both raised prices and ate part of the increase, and competitively that's often the right call. The mistake is letting the split happen by default. Know which products are carrying the increase, which ones you're subsidizing, and what you're getting for the subsidy.
• Don't treat one good month as the turn. June's relief was mostly energy. In the same NFIB survey, owners planning price increases for the next three months outnumber those planning cuts by 32 points, and the report's commentary expects borrowing costs to stay elevated with the Federal Reserve unlikely to cut rates in the near term. Plan your fall on the year's trend, not on June's.

Where funding fits when costs move before prices can

Underneath all of this is a timing problem. Your costs reprice immediately: the supplier invoice that arrives this week is at this week's prices. Your own prices move slower, because contracts run their term, printed menus and rate sheets take time to redo, and long-standing customers deserve a conversation before a new number. The lag between paying new costs and charging new prices is a cash flow gap, and it opens up in businesses that are otherwise perfectly healthy.

Bridging that lag is a legitimate use of financing. A working capital loan puts a fixed amount behind you while your repricing catches up to your costs. A business line of credit fits the messier version, where the squeeze shows up as a different-sized gap each month and you'd rather draw only what the month requires.

Borrowing through a squeeze only works if you know exactly what the borrowing costs. Put any offer's full cost on paper, ours included, before you take it. Our guide on how business funding costs work walks through how to do that. And financing isn't the only lever: our guide on improving business cash flow covers the tightening you can do before you borrow a dollar.

We see this margin pressure most clearly in retail and manufacturing, the two industries where tariff-related costs hit hardest in the Fed's survey, but the producer-price gap touches nearly every business that buys physical inputs.

Running your numbers with Monera Capital

Monera Capital funds established U.S. businesses across twenty industries, generally those with at least six months in operation and $10,000 or more in monthly revenue. Seeing what you qualify for starts with a soft credit pull that won't affect your score, and decisions typically come back within 4 – 8 hours. If the more useful first step is a second set of eyes on your repricing math, we're glad to start there instead.

Data in this article comes from the U.S. Bureau of Labor Statistics' June 2026 Consumer Price Index and Producer Price Index releases, the U.S. Bureau of Economic Analysis' Personal Income and Outlays release for May 2026, the NFIB Small Business Economic Trends report for June 2026 (a copyright of the NFIB Research Center), and the Federal Reserve Banks' 2026 Small Business Credit Survey report on employer firms. Figures are the latest available as of publication and are subject to revision by their sources.