Eve, here. It is not wrong to think that the great unwashed American people are benefiting from meaningful inflation. Corporate America also reported on this, but according to William Gibson’s formula, “The future is already here. It just hasn’t been distributed.” Wolf Richter’s summary of the cost pains faced by businesses features prominently the cost of health insurance, which also has a huge impact on household budgets. But what’s worse, Wolf argues, is that raising health insurance premiums has forced companies to suppress wage growth, further worsening real incomes for workers.
Written by Wolf Richter, editor of Wolf Street. First appearance: Wolf Street
Manufacturers reported that employee health insurance costs jumped by an average of 14.2%. A New York Fed report based on a survey of businesses in the New York-Northern New Jersey region reported an average growth rate of 12.9% for service companies.
While these are averages, “some companies reported increases of 25% to 50% when renewing coverage,” the report said.
Manufacturers and service companies both reported that utility costs rose by about 8.5% on average. About one-fifth of companies reported an increase of 20% or more. “In fact, the sharp rise in utility costs in some regions is related to the explosive growth of AI-related data centers,” the report said.
For service companies, commercial insurance had the third largest cost increase, rising 6.8%. This includes liability insurance, property insurance, auto insurance, and workers’ compensation insurance.
For manufacturing, commercial insurance had the fourth worst growth rate, with an average growth rate of 7.4%.
Almost 10 of these companies reported significant increases in business insurance costs of 20% or more.
For manufacturing, the third worst increase was in product and material inputs, which increased by 8.0%. They reported significant increases in the cost of tariffed inputs such as aluminum, steel, equipment, electrical supplies, auto parts, coffee and cocoa.
For service companies, the average increase in goods and raw material input costs was 5.5%.
“Tariffs may have a greater impact on manufacturing industries, in part because they are facing steeper increases in the cost of goods and materials compared to service industries,” the report said.
These are very serious cost increases.
The Producer Price Index (PPI), which tracks prices paid by businesses, also shows that costs have accelerated sharply across a wide range of industries, with prices for services (which make up the majority of the PPI) and goods rising significantly. Rising prices for goods are caused by businesses shuffling the cost of tariffs among themselves, but they have a hard time passing those prices on to businesses that trade with consumers, and businesses have a hard time passing those prices on to consumers without losing sales.
But wages in services and manufacturing rose just 3.4%, amid signs that rising costs for employee health insurance (the average annual premium for employer-paid family health insurance has risen to about $27,000, according to the New York Fed) is putting downward pressure on wage growth.
“Companies that provide insurance to their employees indicate that absent these cost increases, they would have raised wages by approximately 1 percentage point more on average (or a 4.4% excess), suggesting that rising health insurance costs are inhibiting wage increases for employees at these companies,” the report said.
However, rent and lease growth was relatively modest at 2.2% for service companies and 1.8% for manufacturing, thanks to the downturn in commercial real estate.
This graph shows cost growth by category for service companies. Note that business insurance ranks third (+6.8%).
This graph shows cost growth by manufacturer category. Notably, Goods and Materials Input ranks third (+8.0%) and Commercial Insurance ranks fourth.
The report also noted that service companies and manufacturers will be affected differently by these cost increases.
“For example, utilities and material input costs will be a larger portion of costs for a manufacturer compared to a consulting firm, where labor costs will have a greater impact. Therefore, cost increases in any category could impact some companies more than others.”
Total costs for service companies increased by 7% in 2025, accelerating from a 5% increase in the previous year.
Manufacturers’ total costs increased by 8.5%, a significant acceleration from the previous year’s 5% increase.
These are just representations based on businesses in the New York and Northern New Jersey area and are not national representations. Businesses in other regions of the United States may experience somewhat different cost drivers, with average increases in utility costs being the most notable in many regions.
So inflation is raging again beneath the surface at the consumer level. That was reflected in the inflation-adjusted GDP, with the Gross Domestic Purchase Price Index (a measure of overall domestic inflation for consumers, businesses and governments), which reflects inflation-adjusted GDP excluding imports, rising 3.7% in the fourth quarter, the worst in three years.
