The November 2025 ISM® Manufacturing PMI® Report delivered a Manufacturing PMI® of 48.2%. This level below 50 signifies contraction in manufacturing. The Manufacturing PMI® is in its 9th straight month in contraction and 35th month of contraction in the past 37 months. January and February of this year were the only two months of growth over this timespan. Fortunately, manufacturing is not weak enough to drag the entire economy into contraction. According to ISM, a Manufacturing PMI® above 42.3% “over a period of time” is consistent with an expanding economy. In fact, “the past relationship between the Manufacturing PMI^® and the overall economy indicates that the November reading corresponds to a 1.7% increase in real gross domestic product (GDP) on an annualized basis”.

Unfortunately, the ongoing contraction in manufacturing has not cooled off inflationary pressures. Currently, higher steel and aluminum prices have cascaded through the manufacturing value chain. Tariffs on imported goods have created additional cost burdens. The ISM^® Prices Index increased month-over-month from 58.0% to 58.5%. The Prices Index is also up 6 percentage points year-over-year and has increased for 14 straight months. 

Perhaps tellingly, Computer & Electronic Products was one of four industries that grew in November. I assume the rush to implement AI across enterprises and government is providing this push. For example, Dell Technologies (DELL) reported exceptionally strong demand for AI servers. From the transcript of the recent Q3 2026 earnings call: “AI server demand remained exceptionally strong. We booked $12.3 billion in orders in the quarter, bringing year-to-date orders to $30 billion, both record figures. The large-scale customer base continues to broaden with expansion across neo-cloud or Tier 2 CSPs and sovereigns”.

With manufacturing locked in contraction and services still carrying economic growth, the divide between these two sides of the economy has become central to understanding today’s stagflationary pressures. Input costs continue to rise even as new technologies reshape demand patterns. The expanding adoption of AI could influence productivity and cost structures in unexpected ways. How these pressures resolve in 2026 will be essential to tracking whether stagflation persists, begins to unwind, or takes on a new form altogether.

Full disclosure: long DELL

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Manufacturing is experiencing the greatest price pressures. Consumer-facing companies, like retailers, are staring down customers who are increasingly unwilling to pay higher prices. These mounting pressures have yet to drag on the stock market. For example, even after Caterpillar (CAT) changed its guidance to incorporate higher estimated tariff costs, the stock pulled back slightly for a very brief period before rallying sharply.

Of course, the market’s general lack of concern for tariff costs, excluding this month’s sharp but brief churn from reigniting US vs China trade tensions, makes the Fed’s job ahead much easier. The market promises to focus on the positives to come from easing monetary policy and to ignore any inflationary impacts.

Here are the price-related highlights from each region that most caught my attention…

Boston

The inflation picture continues to gradually deteriorate in Boston. Boston produced benign inflation commentary in the July report, but several points of inflationary pressure showed up in the August report. Now, “most contacts expected to face at least modest further cost pressures moving forward, and some were concerned about a possible acceleration of prices in 2026.”

New York

This district delivered some of the sharpest inflationary commentary in the July report. In the August Beige Book, the Fed summarized businesses as expecting “a pickup in the pace of price growth in the months ahead” and now for October these firms are warning they “expect significant pricing pressures to persist.” The range of pricing narratives in New York remain the most colorful including one retailer that adjusted prices according to an estimate of demand elasticity for each of its products in an effort to accommodate cost pressures from tariffs.

Philadelphia

Like New York, Philadelphia provided a colorful description of broad-based pricing pressures. While price growth “moderated”, the Fed described some concerning practices in the district including “multiple contacts noted that some suppliers were citing tariffs when raising prices, even if their goods were not subject to increased levies.” This behavior broadens the inflationary impact of tariffs. Weakening economic conditions are pressuring the margins of consumer-facing businesses who are unable to pass along all the increases in input costs with many even “increasing discounts to sustain demand.”

Cleveland

Just as described in the prior Beige book “in general, costs were expected to grow at a strong pace in the coming months.” In recent weeks, “nonlabor input costs rose at a robust pace” with tariffs frequently blamed for the pricing pressures. In a familiar refrain, some retailers chose to discount prices. Some selectively rose prices. Some manufacturers chose market share over profits by holding prices steady despite cost pressures.

Richmond

Richmond returned to sparse commentary on inflation. The Fed reported that “on balance, year-over-year price growth remained moderate this cycle.” The contact-specific reports ranged from little to no price pressures. Some businesses have yet to pass along tariff-related costs.

Atlanta

Higher inflationary pressures are apparently just getting started in Atlanta. According to the Fed, “contacts warned that price pass-through resulting from tariffs has just begun and expect to see prices rise into 2026.” While firms currently use a wide variety of tactics to cope with cost pressures, particularly from tariffs, the “internal cost pressures continued to mount, and firms noted there was little room to cut costs further.”

Chicago

The inflation to come in Chicago is on the retailing side. Retailers are still trying to sit on price increases: “retailers were trying to hold off passing tariff-related cost increases on to consumers for as long as possible, though several smaller retailers reported already raising prices because of tariffs.”

St. Louis

As in Philadelphia, St. Louis reported an incidence of a business opportunistically increases prices where a “suppliers’ costs had increased despite having a primarily domestic supply chain.” As in other regions, St. Louis also called out insurance premiums and utilities as adding to the price pressure from tariffs.

Minneapolis

Minneapolis reported a very specific breakdown of pricing pressures: “One-fifth of District firms increased the prices they charged to customers in September from a month earlier, and a similar share anticipated increasing their prices in the month ahead. More than half of respondents reported increased input prices over the previous month.” Overall, prices increased “moderately” with more pricing pressure from input prices.

Kansas City

According to Kansas City, inflation next year could be higher than this year: “The anticipated acceleration of price growth was expected to be somewhat persistent; most firms reported they anticipate raising selling prices in 2026 at a slightly faster rate than this year.” Manufacturing firms are feeling the highest pressure as input prices push higher.

Dallas

Just as in other regions, manufacturers in Dallas were the hardest hit by input cost pressures. However, going forward, it is service firms that expect higher inflation while manufacturers expect “steady” price growth.

San Francisco

With “somewhat” weakening economic conditions, restaurants and insurance companies faced customer pushback on higher prices. Overall, prices “rose modestly” with retailers passing on increased input cost “mostly in the mid to high-end markets.”

Hedging the Inflation Call

As gold continues to soar, I recognize that the precious metal is serving as much more than a dour inflation hedge (the technicals in the chart below actually suggest a topping process may be unfolding. The recent decline in bond yields (rally in prices) reminds me that the bond market ranks inflation toward the bottom of its worries. Accordingly, I cannot adamantly plant a flag on the field of inflation (for example, I stopped fading the iShares 20+ Treasury Bond ETF). Still, I consider inflation to hold plenty of potential to surprise to the upside given a rate cut cycle has restarted with plenty of inflationary pressures growing, not diminishing, in the economy. The Beige Book is a key tool for sniffing out these pressures.

Be careful out there!

Full disclosure: no positions

The post October Beige Book Includes Signs of Higher Price Pressures in 2026 appeared first on Inflation Watch.

“Caterpillar is announcing price action of 0 – 3% worldwide on most machines. This price change will be effective January 2012.

In addition, emissions-related price increases of 2-6% will also apply in January for applicable products and regions.

This price change is a result of current industry factors as well as general economic conditions. Details by product will be released to dealers in the near future, and will vary across geographic regions and products.”

This is a surprising announcement given the rapid decline in commodity prices in the past several months and an earnings warning from Ingersoll-Rand (IR) announced just today. This pricing news suggests that global economic conditions are not yet recessionary.

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