In the budget, prices are updated item by item, not with the inflation rate

31 October 2026, 08:16

The inflation rate reported in the newspapers measures how much the spending of an average household changes, whereas a company's budget is built on what it costs to buy what the company buys and on what it collects from what it sells, which follow different rules. On 30 October Istat, the Italian national statistics office, estimated that in the month consumer prices rose by 5.4% compared with a year earlier, against 4.2% in September, and that energy goods were up 31.4%; excluding these and fresh food, the increase stops at 2.0%. Whoever is preparing the 2027 budget in these weeks wonders what increase to put next to next year's expenses.

The inflation rate is an average weighted on household spending

The national consumer price index, the one the 5.4% comes from, follows the cost of a basket of goods and services, each weighted by the share it takes up in the consumption of Italian households: food, housing, transport, clothing, services. In a company's costs the proportions are different: in an engineering workshop what counts is steel, hours of labour, machine maintenance and the rent of the plant, while food and clothing, which carry significant weight in the basket, do not appear at all. A number built on a different basket cannot say by how much a company's costs will grow.

There is also a second reason. The 5.4% is the average of items moving at very different speeds, as shown by October's 31.4% and 2.0%: applying the same average to all the costs in the budget inflates the expenses set to rise little and underestimates those that will grow the most. The total may even turn out right by chance, but the budget shows where to act only if every line is right.

Each cost grows according to its own rule, and from a precise date

The method consists of asking, for each item, what drives its price and from when. Pay follows the national collective agreement applied, which sets increases in minimum wages on fixed dates, or the negotiations for its renewal if it has expired; on top of these come length-of-service increments and the raises decided by the company. The rent of a plant grows only if the contract provides for an annual update; for leases of the minimum term of six years, Law no. 392 of 27 July 1978, Article 32, limits the increase to 75% of the change in the Istat price index for blue- and white-collar households, an index different from the one giving 5.4%. Energy supplies depend on how the contract is written: with a tariff fixed until expiry the increase kicks in only at renewal, with a tariff linked to the exchange it arrives the same month. Raw materials follow suppliers' price lists and international prices, outside services the agreements made with those who provide them.

The budget is therefore built by grouping costs according to the mechanism that makes them rise, that is a contract, an index or the market, and by placing each increase in the month in which it will actually take effect. An expense that weighs little today but is linked to the exchange can move the result more than a large item that will stay locked for the whole of 2027.

Selling prices also rise on their own timetable

The same reasoning applies to revenues, which usually move later than expenses. A price list is updated once a year, large customers accept an increase only when their contract expires or after a negotiation, and many orders already accepted stay on the old terms for months. The most frequent mistake is to raise costs and selling prices by the same percentage from January: on paper profit grows in proportion to sales, in reality expenses rise immediately and revenues follow a few months later, and during that period every cost increase that the price does not yet cover comes out of profit.

To avoid it, the budget should show the price increase for each customer or each product line from the month in which it can actually be applied, not from the month in which it would be needed. The gap between the month in which costs rise and the month in which the price rises, added up customer by customer, measures how much of the cost increases the company will have to bear alone before it can pass them on, and shows with which customers it is worth negotiating first. The inflation rate remains the measure of the prices paid by households; the numbers in the budget, item by item, come from the contracts and price lists with which the company buys and sells.

This article was prompted by a news item published in Bloomberg on 30 October 2026.