Are you about to pay twice for inflation?

Five mechanisms that slowed price normalisation 

Understanding why the gap persists is essential to closing it. Research suggests that cost increases pass through to prices roughly 5x faster than cost decreases. Upward pass-through happens within one to two quarters. Downward pass-through, when it happens at all, takes six to eight quarters, and rarely happens without deliberate buyer action.⁴ 

Prices did come down after the 2021–23 peak, just not to levels that reflected actual costs. And without visibility into supplier cost models, most buyers had no basis to challenge it. On top of lagged indexation, there are other structural mechanisms that drive and help maintain the asymmetry.

The five mechanisms reinforced each other and prevented prices from fully resetting after the COVID inflation shock. Temporary surcharges introduced during the crisis gradually became embedded into the commercial baseline through ‘surge-and-stick’ pricing, while lagged indexation passed increases through contracts faster than decreases. At the same time, concentrated supply markets gave suppliers stronger pricing power and reduced pressure to reverse increases. Many companies also absorbed higher costs internally to protect volumes and avoid commercial disruption, delaying downward repricing to the market. Over time, elevated pricing gradually became embedded in market expectations, turning what was initially treated as temporary inflation into a structurally higher reference price across industries. 

The new shock is landing on a base that was never corrected 

The urgency is not just about recovering from the past but also about protecting against what is forming now. Supplier commercial teams are already responding. Energy surcharge letters are being prepared. Raw material pass-through claims are being drafted. Freight adjustment requests are being issued. Often framed as ‘temporary adjustments’ linked to renewed volatility. 

The critical difference between 2020–2022 and 2026 is the starting point. In 2020–2022, new cost increases landed on a relatively normalised price base. In 2026, they are landing on a price base that already reflects three years of unrecovered margin expansion. The compounding effect, not the magnitude of the new shock, is what creates the structural competitiveness risk. 

Many surcharges discussed and accepted today will be calculated against an already-inflated reference price. Every indexation mechanism that adjusts upward will adjust from a base that was never corrected: the gap does not reset, it compounds.

The gap can be closed – and recovery looks like this 

For senior leaders questioning whether the gap is large enough to act on: it is. Between 2022 and 2025, as costs normalised but supplier prices did not, we worked alongside European manufacturers to quantify, negotiate, and close the price-cost gap across procurement categories. Results varied by category, but the direction was clear:^⁵

When supplier negotiations are not enough 

Structured price resets work well across the majority of an industrial manufacturer’s supply base. But a subset of categories and suppliers present structural conditions that make direct price negotiation insufficient or ineffective: 

• Near-monopoly supply 
• Single-source dependencies 
• Proprietary technology 
• Switching costs so high they neutralise competitive pressure

Treating these categories the same way as the rest of the portfolio is a strategic mistake. So is accepting the status quo. Where price negotiation alone cannot close the gap, the lever shifts from commercial pressure to joint value creation through partnerships and value chain restructuring. 

Supplier partnership and joint value creation 

In categories where direct price negotiation is genuinely constrained, the relevant commercial lever shifts from price to total value. Operational inefficiencies embedded in how you work together, for e.g., delivery windows, buffer stock levels, forecast accuracy, demand signal quality, all drive cost on the supplier's side and land in the price. A supplier carrying safety stock to buffer your forecast volatility is not absorbing it. They are invoicing it. Making those inefficiencies explicit, setting joint improvement targets, and structuring the saving back as a price benefit is a lever that works even where direct price challenge fails. 

The same logic applies to the product. Specifications set at the original design stage, e.g., tolerances, material grades, certifications, geometry, are rarely revisited. When they are, 5–15% cost reduction potential is typically available without changing supplier. Design-to-cost programmes formalise this as a joint workstream: identify where the cost sits, co-design the path to reduce it, share the saving. A supplier whose own cost base is reduced has a commercial reason to pass it through. 

The discipline is to keep commercial logic explicit. Defined cost reduction targets, shared metrics, and clear governance are what distinguish a strategic partnership from a purely relational supplier relationship.

Making price reset a capability 

The companies that perform best through cost cycles are not those that respond best to individual shocks. They are those that have built a continuous commercial capability: a fact base that is always current, a negotiation approach that is always anchored on data, contract structures that are always symmetric, and a portfolio view that separates negotiable categories from those requiring technical value levers. 

That capability does not require a large team. It requires the right data infrastructure, the right analytical skills in the right categories, and a leadership commitment to the principle that prices should reflect costs, in both directions. 

How we can help 

Implement works with European manufacturers and industrial companies to build fact-based procurement reset programmes, from analytical preparation through structured negotiation execution to contract restructuring and capability building. 

1. Diagnostic sprint: Quantify the price-cost gap by category, size the recovery opportunity, and define the reset programme scope and governance. 
2. Structured reset programme: Run structured negotiation waves covering your highest-impact supplier relationships, with analytical support, should-cost models, negotiation preparation, and programme governance. 
3. Advanced value lever programme: For constrained categories, deploy design-to-cost, specification review, and value chain restructuring to reduce structural dependency and capture value where price negotiation alone is insufficient. 
4. Capability building: Embed the tools, processes, and skills your team needs to run continuous price monitoring and structure resets independently.

Sources and notes 

1. European Commission, Eurostat, UNCTAD, IMF 

2. ECB Economic Bulletin, Issue 2 / 2023, Article: “The role of profits in domestic inflation in the euro area” 

3. European Commission, Eurostat, IEA, ECB 

4. European Centre for Economic Policy 

5. Implement Consulting Group Benchmarks