An annual price list is a forecast. It assumes the costs inside it will sit still for twelve months. In 2025, US steel prices didn’t sit still for one: the producer price index for steel mill products moved by more than 1% in every single month.
Most manufacturers buy at one speed and sell at another. That gap between the two clocks is where a lot of margin goes, before any customer has negotiated anything.
Two clocks
The classic evidence comes from the US Bureau of Labor Statistics’ own price records. Studying producer prices for 1998–2005, economists Emi Nakamura and Jón Steinsson found that 98.9% of crude material prices changed in a typical month. Finished producer goods changed far less often: a median of 8.7 months between price changes.
Firms have sped up since. In the Richmond Fed’s September 2026 survey of firms in its region, the share making no price change in a year has halved since before the pandemic, to 13%. But only 20% adjust prices at least monthly. In the UK, the Bank of England’s Decision Maker Panel finds 46% of firms still set prices at fixed intervals rather than in response to costs.
Annual repricing isn’t universal any more. It is still common, especially where prices sit in price lists and long-term contracts.
What the lag costs
US steel mill product prices rose 25% between January and May 2025, fell 11% by November, then climbed 33% to September 2026. A price list set in January 2026 and left alone is now 23% behind the steel in it.
Take an illustrative manufacturer with $65m of revenue, a 30% gross margin and steel at 30% of its cost of goods. If it set prices in January and held them, it absorbed $1.18m of extra steel cost by September, about 8% of the period’s gross profit. Covering steel at September prices would take a 4.9% increase across the whole range.
Nobody discounted anything, and no customer pushed back. The margin went in the gap between the date the price was set and the dates the costs moved.
Why the usual fixes become a patchwork
Businesses have reached for every tool to hand. 83% of firms in the Richmond Fed survey have adopted an alternative pricing approach, such as customer-specific, index-linked or dynamic pricing. Almost a third use index-based pricing.
But tools only work when they’re applied. Across industries, Simon-Kucher’s 2025 Global Pricing Study found 53% of companies use contract indexation, and only about half of them apply it consistently. Surcharges get added in a rush and quietly waived to keep an order. Before long, some customers are on indexed contracts, some on surcharges, some on last year’s list, and nobody can say how much of the cost increase has actually been recovered.
Tariffs add another layer. Research by Gita Gopinath and Brent Neiman estimates that 94% of the 2025 US tariffs passed through to the tariff-inclusive price of imports, so the importer paid almost all of it. The tariffs themselves kept changing. Every change moved somebody’s landed cost. Very few moved anybody’s price list.
Separate what moves from what doesn’t
The answer isn’t to reprice the whole range every week. It’s to stop asking one annual price to carry two very different kinds of cost.
- Keep the value-based price stable, along with the bundle, discount rules and the structure of the price list. Review those on a timetable.
- Let the volatile inputs move by a rule agreed in advance: steel, aluminium, energy, freight and tariffs, linked to a named index.
- Set reviews off with events, not dates, so a defined move in that index triggers a review in days rather than at next January’s price round.
The value conversation then happens once. The volatile part follows a mechanism both sides understand. And the business can finally see what it has recovered, from whom, and how fast.
The question underneath
Can your business measure how quickly changes in input costs flow through to realised selling prices, by product, customer and market?
Most manufacturers can say what their costs did this year and what their list price is. Far fewer can say how long the gap between the two stayed open. When costs move every month, the speed of recovery decides the margin as much as the size of the increase.