Key takeaways:
- In September, more than half of purchasing executives (58.6%) paid more for raw materials. Food was one of 16 industries that reported higher costs.
- Producer prices for food changed little in August, while diesel, containers, and plastic resin prices surged. A blanket price increase asks your buyer to accept a cost increase that doesn’t match their own data.
- Tie price to a specific input and a public index, let it move in both directions, and bring the calculations to your next renewal.
Producer prices for diesel fuel rose 77.8% in the 12-month period ending in August. Meanwhile, food prices rose just 0.1%.
While your freight, energy, and packaging costs go up, your buyer is focusing on unchanged food prices. So a letter requesting 4% across the board asks them to trust you over their own data, and they’re likely to push back before you’ve made your case. This leaves you to absorb the difference, taking funding away from new lines, customers, and the people who manage both.
A contract clause tied to specific input and measured by a public index keeps you and your buyers centered on the same number.
The Prices Index rose to 77.9, and 58.6% of purchasing executives paid more in September
According to the September Manufacturing PMI report from the Institute of Supply Management (ISM), the prices index went up 6.8 points to 77.9% over the month. The index, which tracks how many purchasing executives paid more, found that 58.6% reported higher prices, 38.6% reported no change, and only 2.8% paid less. ISM adds the share reporting increases to half the share reporting no change, arriving at 77.9%.
Raw material prices have gone up for 24 consecutive months. Sixteen industries said they paid more in September, including Food, Beverage & Tobacco Products. None reported paying less. Several of the commodities ISM lists as rising directly impact food plants, including:
- Corrugated products and packaging materials
- Resins and plastic-based products
- Diesel, fuel, and freight
- Soybean meal
In addition, one food industry respondent commented, “Beef costs remain high, with no relief in sight.” Of the negative comments ISM collected for the latest report, 46% mentioned pricing volatility, 34% cited tariffs, and 30% mentioned the Iran war.
Note that these responses come from purchasing and supply executives, the same role that reads your price letter.
Food producer prices inched up 0.1%, while resins, containers, and paperboard jumped 5% to 7%
If you read the August Producer Price Index (PPI) update the way a food buyer would, you’d focus on final demand foods rising 0.1%, processed foods and feeds dropping 1.2%, and slaughter cattle declining 3.9%.
A plant controller, on the other hand, would pay attention to:
- No. 2 diesel fuel prices rising 77.8%
- Plastic resins and materials increasing 6.6%
- Containers for intermediate demand jumping 5.5%
- Paper board increasing 5.1%
- Supplies to manufacturing industries rising 10.8%
Adding to this, the Bureau of Labor Statistics (BLS) reported that final demand energy prices surged 24.4% over the year.
In short, if you only track food prices, you’ll see almost zero inflation. But if you pay for trucks, film, and corrugate, you’re following steep increases.
According to the Federal Reserve’s September Beige Book, Philadelphia-area manufacturers reported freight and utility costs they couldn’t pass on to customers. In the St. Louis area, poultry demand continued to rise while increasing input costs squeezed producer margins. Consumer-facing businesses in a few districts said that price-sensitive shoppers were limiting how much of their own cost increases they could pass through. Your retail customers will bring that pressure into each negotiation.
A PPI-linked clause lets your buyer verify price changes
A price increase letter rolls every cost into a single percentage. Because the buyer can’t check it, and the food price data they follow showed little to no increase, they push back. You counter, and the outcome depends on who needs the deal more.
An index clause gives the buyer one input, one published index, and a formula to verify. When the index changes, the price changes along with it, and the buyer can confirm it through BLS data.
Procurement teams already function this way. In BLS’s 2024 PPI user survey, 28% of respondents said they apply PPI data to contract price adjustments. The PPI release notes that unadjusted data are usually cited when long-term purchasing agreements are escalated.
This delay between cost and prices isn’t unique to food. When the Richmond Fed’s CFO survey asked firms in June how rising oil prices had affected them, two-thirds reported higher costs and one-third reported higher prices.
The terms to settle before you index a price to diesel or packaging
Start with the documented input that experiences the most price changes. For most food plants, that’s likely freight and diesel, corrugate, film and resin, or a primary protein.
Next, go through the terms:
- Select a specific series. Cite the BLS series by its full title and code, such as No. 2 diesel fuel, so there’s no question about which number you’re using.
- Index only that input’s share of the price. If packaging makes up 12% of an SKU’s cost, the packaging index impacts 12% of the price. This makes it easy for the buyer to check the proportion.
- Set the base month and cadence. Decide on a base month and year and whether adjustments happen monthly, quarterly, or annually.
- Use unadjusted data. Seasonal adjustment removes some of the price changes the clause is supposed to track.
- Make it symmetric. If the index falls, price drops. Diesel is an example of why both sides want that protection. Even on a seasonally adjusted basis, its PPI increased 13.5% from April to May, dropped 17.8% from May to June, and jumped 24.1% from July to August.
- Add a band and a fallback. A no-change band keeps small moves from triggering paperwork. And having a backup index ensures you’re covered if the BLS discontinues or recodes the series.
Index SKUs based on rising inputs like beef and wheat, but leave eggs and milk out this year
There are a few cases where this clause works best:
- SKUs where on volatile input is a large, measurable share of cost
- Products sold under longer contracts
- Private label and co-manufacturing contracts priced from a cost build-up
It performs poorly for promotional SKUs, short-term deals, and areas where your key input is falling.
Direction is key because an index clause pays out both ways. The USDA Economic Research Service’s 2026 outlook, updated September 25, forecasts wholesale beef prices rising 8.5%, farm-level wheat increasing 18.3%, and farm-level vegetables going up 16.0%. Meanwhile, farm-level egg prices are anticipated to drop 79.2% and farm-level milk by 9.4%. Thus, indexing to beef protects beef processors this year, whereas an egg-indexed clause for an egg-heavy SKU will lower prices.
If you use inputs that are expected to keep rising, you accept that the clause will lower your price in some quarters. A clause that can cut prices as well as raise them remains fair for both parties.
How to prepare for the next renewal meeting
Before presenting anything to the customer, pull eight quarters of your actual input costs and the matching BLS series. Run the proposed clause against that history to see what it would’ve paid you, what it would’ve cost the buyer, and how often the band would’ve triggered. AI tools can help you run that backtest across dozens of SKUs and several indexes in an afternoon, work that can take weeks by hand.
Then propose the clause at renewal. A mid-contract request gives the buyer an opportunity to renegotiate other terms as well.
Provide an evidence pack that outlines:
- The SKUs covered
- Each input’s share of cost
- The specific index series for each
- A 24-month chart of each index that includes what the clause would have done to the price over that period
This shows the buyer you’ve already checked whether the clause would’ve cost them money, and it allows everyone to start the meeting on the same page.
