Are Costs Really Going Up? Yes.

I mentioned earlier this year that price increases are showing up everywhere. What was typically an inexpensive breakfast or lunch is now an infrequent, costly event. I remember stopping by Denny’s long ago for a $1.99 “Are You Outta Your Mind!” breakfast with orange juice and coffee. Now that $1.99 breakfast is nearly $19.99 with no orange juice or coffee! Dining out prices for evening meals have increased so much that some families have been budgeted out of this luxury.

Costs continue to creep up, especially for energy. West Texas Intermediate (WTI) oil is trading near $98/barrel, which could push prices at the pump higher.

Last week, the U.S. Bureau of Labor Statistics (BLS) stated in its Economic News Release that U.S. import prices increased 1.1% in September, following a 0.5% increase in August. Year-over-year (YoY), September import prices increased 8.1%, the most since July 2022, following a revised 6.7% YoY increase in August.

Trading Economics had the following observation regarding historical averages of import prices:

“Import Prices YoY in the United States averaged 1.52 percent from 1983 until 2026, reaching an all time high of 21.40 percent in July of 2008 and a record low of -19.10 percent in July of 2009”

The chart below shows that today’s rise in import prices, while sharp, is still well below past peaks. In July 2008, YoY import prices peaked at 21.4%, more than double today’s 8.1%. Spikes in import prices have sometimes come before recessions. Shaded areas mark recessions as dated by the National Bureau of Economic Research (NBER). However, as illustrated, there are several periods of equally high import prices that were not followed by a recession.

U.S. Import Prices Compared With a Year Earlier, 1986 to 2026

Rising import prices matter more when the U.S. is buying a record amount from abroad. In August, U.S. imports surged to an all-time high. Trading Economics provided this commentary:

“US imports surged $17.2 billion to an all-time high of $420.8 billion in August 2026, contributing to a widening in the trade deficit to $105.6 billion from a revised $92.8 billion in July. The increase was led by a $9.1 billion rise in industrial supplies and materials, mainly crude oil and non-monetary gold, while capital goods imports rose $6.2 billion on stronger purchases of semiconductors and other industrial machinery. These gains more than offset a decline in computer accessories. Services imports were broadly unchanged, as higher transport imports offset declines in charges for the use of intellectual property and travel.”

U.S. Imports, 2017 to 2026

A widening trade deficit means the dollar value of U.S. imports is growing faster than the dollar value of U.S. exports.

The result is that the U.S. is importing other nations’ inflation. However, U.S. export prices to trading partners are rising at an even faster rate. In both cases, these figures exclude tariffs and import/export duties, which are an added cost to the buyer.

U.S. export prices surged 11.6% YoY in September, the highest YoY increase since July 2022. In August, export prices increased a revised 9.3% YoY. Export prices YoY averaged only 1.58% from 1984 to 2026, similar to the 1.52% average for U.S. import prices.

Even as U.S. consumers buy more imported goods, U.S. exports remain near record levels. In August, U.S. exports increased $4.5 billion to $315.2 billion, which is below April’s all-time high of $329.9 billion.

U.S. Exports, 2000 to 2026

What does this mean to me?

Kevin Warsh, Chairman of the Federal Reserve (Fed), has been consistent in his messaging that the Federal Open Market Committee (FOMC) is committed to reducing the annual inflation rate to 2%. The latest U.S. Consumer Price Index (CPI) inflation rate is 3.7% over the 12 months through September 2026. Core CPI, excluding food and energy, was 2.6% over the same period as reported by the BLS.

The Fed’s primary tool for fighting inflation is the target range for the federal funds rate. The FOMC raised the federal funds rate in September. As of October 20, futures markets were pricing a hold at the October 28 meeting and a likely hike in December.

The evidence points to continued cost pressure for U.S. households and businesses. Rising import prices can add to inflation, while higher export prices show that costs are increasing across trade in both directions. Record import and export activity also reflects strong demand, so these trends alone do not signal that a recession is inevitable.

For consumers, however, the effect is more immediate: everyday purchases, meals out, and fuel are taking a larger share of the budget. If inflation remains persistent, the Federal Reserve may keep interest rates higher for longer, adding pressure to borrowing costs.

Consumers have faced a higher cost of living all year, and we believe many may be limping into the holidays with less savings and less willingness to spend than usual. The key question is whether price increases will begin to ease even as interest rates may be rising.

This is an excellent time of year to review your goals and financial plan. As year-end approaches, it’s a good opportunity to assess your progress in 2026 and prepare for 2027. We welcome the opportunity to work with you and your family to help keep your financial plan on track and support your goals and objectives.