Who Pays For The Rising Cost
Demand held this week while the cost of serving it kept rising. Delta grew revenue 16% and earned the same profit as a year ago, PepsiCo cut its earnings outlook as its North American snack profit fell 12%, and 69% of consumers plan to buy less of what has become expensive.
Services companies paid more for what they buy in September, and demand behind those costs held. The Institute for Supply Management's Prices Index for services reached 74, its highest reading since July 2022, while the Services PMI registered 54.9, a 27th consecutive month of growth.
The Federal Reserve's September minutes, released Wednesday, said most officials judged that another rate increase would likely be appropriate by year end. Officials noted that businesses appeared more successful in passing cost increases to consumers, and that higher energy prices were weighing hardest on low- and moderate-income households.
Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year.
Joanne Hsu, Director, Surveys of Consumers, University of Michigan, October 2026
If costs keep rising, the question is who pays for them: the customer or the margin.
- Cost: Fuel and input costs are running ahead of what plans assumed in July.
- Price: Raising prices has held profit level at best, and lowering them has cost profit.
- Customer: Most households plan to buy less of whatever has become expensive.
Delta grew revenue 16% in the September quarter on flat capacity, and adjusted pre-tax profit stayed at $1.5 billion as fuel expense rose 62%. Costs rose $2.4 billion, the same amount as revenue.
Delta paid an adjusted $3.61 a gallon for fuel, 60% more than a year earlier and well above the $3.15 it assumed in July. Delta credited broad demand and higher fares for the revenue gain, and adjusted pre-tax profit held at $1.5 billion, level with last year. Delta expects to absorb a $6 billion increase in fuel costs across 2026. The company cut its full-year earnings outlook to $5.10 to $5.60 a share, from $6.50 to $7.50 in July. It expects December quarter revenue to grow about 20% while seats grow less than 2%, with fewer seats in Main Cabin. Delta is protecting its margin by adding few seats and raising what each one earns, which works for as long as travelers keep paying.
↗ Delta Air Lines — Delta Air Lines announces September quarter 2026 financial resultsPepsiCo raised its 2026 revenue outlook and cut its earnings outlook on the same day. In North American snacks, net prices fell 1% and volume rose 0.5% while profit fell 12%. Lower prices bought few sales.
Net revenue rose 5.6% in the third quarter, and PepsiCo now expects about 6% for the year, up from 4% to 6%. Currency and acquisitions supply about 3 points of that. Core earnings per share are now expected to grow 2.5% to 3.5%, down from the low end of 5% to 7%. The pressure sits in North America, where the two businesses moved in opposite directions. Snacks lowered net prices 1% and lost 12% of core operating profit. Beverages raised prices 3%, lost 3% of volume and grew profit 4%. Chief Executive Ramon Laguarta said more structural cost cuts are being identified to help offset rising input cost inflation.
↗ PepsiCo — PepsiCo Reports Third-Quarter 2026 ResultsOnly 31% of consumers expect to keep buying as usual over the next year when prices rise sharply. The other 69% plan to cut back or stop, with groceries, cars, dining out and vacations first in line.
The University of Michigan asked consumers from June to September how they would respond to goods with particularly large price increases. 54% said they would cut back and 16% said they would stop buying those goods. Among the lowest third of earners, only 20% expect to spend as usual. Gas averaged about $2.93 a gallon before the Iran conflict and approached $4.50 again in September. Much of the cutting will show up as substitution. On groceries, the survey expects consumers to trade from brand names to generics while total food spending holds. Overall sentiment fell to 46.3 in October's preliminary reading, with the measure of current conditions down 12.2% in a month.
↗ University of Michigan — Gasoline Prices and Expected Consumer SpendingDelta, PepsiCo and American households answered one question this week: who pays for costs that keep rising. Each answer carries its own price.
Delta charged customers more and grew revenue 16%, while costs rose the same $2.4 billion and profit held. PepsiCo took part of it into the margin, lowering North American snack prices 1% while that business's profit fell 12%. Consumers gave the third answer, with 69% planning to cut back or stop buying goods whose prices have jumped.
Pass, absorb, refuse. Every rising cost meets all three, and setting a price is a choice about how much of each a company will accept. Where customers can refuse, the room to pass on the next increase is smaller than this year's results suggest.
The Decision Signal’s posture for the week of October 12, 2026 is Commit.
All five postures are live. Click on any zone to read this week’s signals from there, and what standing in it would cost.
◇ COMMIT: Set 2027 pricing by product line and customer group before the budget is approved: where to raise, where to hold, and which costs the operation will cut to protect the margin. Give each decision one owner.
The evidence on pricing is in. Customers who can pay are paying and those who cannot are trading down, so the room to reprice each product line can be measured now.
Plans built on this year's increases assume customers will accept the next round. If they trade down, the shortfall arrives as lost volume months after the price was set, when the budget can no longer change.
Most plans apply one increase across the portfolio and leave the margin to absorb whatever customers refuse. Closing the gap means deciding, line by line, who pays for the cost and what happens if they decline. Which product lines in the 2027 plan depend on an increase customers have already signaled they will resist?
Few decisions this autumn will be argued over as closely as price. Raising prices protects the margin and asks more of the customer, holding them protects the customer and spends the margin, and the choice arrives while the 2027 numbers are still moving. Few executives will find it a comfortable call.
For several years, passing increases on was a sound instinct, and customers mostly went along, which is why so many plans still rely on it. The customer is the part of that arrangement that has moved, and a large share now say the next round will be met by buying less or buying cheaper.
A few questions repay attention before any price is set. One is which customers still value the product enough to pay more, and which are already reaching for the store brand or the cheaper trip. Another is how much of the cost the operation can remove on its own. A last one is how long the higher cost will last, since a price raised for a passing shock rarely comes back down as easily as it went up.
Answers like these come out best product by product, with commercial, finance and operating leaders working from one set of numbers while 2027 can still change. It asks more of everyone than one increase across the portfolio, and in return the company gets a price it can explain to each customer and a clear view of which ones it can least afford to lose.
Respectfully,
PJ Bickett
After reading this briefing, what is your immediate posture?