Inflation Outlook 2026: How Expectations and Cost Pressures Could Shape the Year

As 2025 draws to a close, inflation has eased from its post-pandemic highs, with recent headline figures around 3%. Yet many households still grapple with higher costs. The latest quarterly CFO Survey—released December 17, 2025, by Duke University’s Fuqua School of Business in collaboration with the Federal Reserve Banks of Richmond and Atlanta—sheds light on why price pressures could linger into 2026, even with moderate economic growth.

These chief financial officers, who oversee strategy at firms large and small, express cautious views: tariffs remain a top concern, prompting plans for price adjustments amid steady but unspectacular expansion. Crucially, their projections are for own-firm prices—not national averages—but these decisions directly affect broader inflation through pricing, wages, and investments.

How Inflation Becomes Behavioral

Inflation isn’t just about supply and demand—it is increasingly shaped by corporate foresight. When executives expect costs to rise, they often raise prices preemptively to protect margins, creating a self-reinforcing cycle even amid moderate demand. Research from the European Economic Review and NBER confirms that anticipated costs strongly predict actual pricing moves.

Key insights from these behavioral channels include:

1. Proactive pricing: Firms adjust ahead of costs, sustaining pressure.
2. Distinct expectations: Business views often diverge from household or economist forecasts, reflecting firm-specific realities (Richmond Fed research, 2024–2025).
3. Direct impact: Assumptions about future inflation influence real decisions, shaping wages, pricing, and investments (NBER analyses).

Takeaway: Corporate behavior actively contributes to inflation dynamics, forming a bridge between expectations and actual price trends.

CFO Expectations for 2026

The Q4 2025 survey highlights what executives plan for their firms, illustrating potential behavioral channels for inflation:

1. Price growth: Median expectation for own products/services is 3.5%, above the Fed's 2% target. Tariffs and input costs drive these planned hikes, showing how firm-level pricing decisions can embed inflation.
2. Employment: Moderate hiring is anticipated. While labor markets aren’t collapsing, modest wage growth in tighter sectors contributes to ongoing cost pressures.
3. Economic outlook: Real GDP growth is projected at 1.9%, with optimism slightly down at 60.2. Moderate growth encourages firms to defend margins through pricing rather than expansion.
4. Top concerns: Tariffs, product demand, labor skills, monetary policy, and inflation motivate preemptive pricing, linking expectations to real outcomes.
5. Productivity focus: AI adoption surged in 2025 (78% of large firms; smaller firms planning increases). While AI may reduce costs long-term, near-term investment raises expenses, indirectly sustaining prices.

These points illustrate how behavioural expectations interact with structural factors, influencing price trends even without major macro shocks.

Structural Cost Pressures

Even as temporary shocks fade, several structural factors support sustained inflation:

1. Faded shocks, lingering effects: Pandemic bottlenecks and commodity spikes have largely resolved, but firms that experienced high costs may maintain elevated prices.
2. Enduring factors: Tariffs raise import costs, wages continue modest growth in tighter labor markets, and higher rates increase financing burdens, creating structural reasons to sustain prices.
3. Restructuring and AI adoption: Investments in supply-chain diversification and AI improve long-term efficiency but increase near-term expenses, potentially passed on to consumers.
4. Behavioral response: Firms are more likely to protect margins than cut prices aggressively, slowing disinflation, consistent with NBER and Federal Reserve research on expectation-driven pricing.

Counterbalancing Forces

Several forces temper these pressures and prevent runaway inflation:

1. Anchored consumer expectations: Surveys such as the University of Michigan’s show long-term expectations near 2%, limiting upward pressure from household spending.
2. Policy credibility: The Federal Reserve’s guidance and December 2025 projections suggest core PCE inflation may ease toward target, helping align corporate and consumer expectations.
3. Forecast biases: Firms often overestimate cost pressures, so planned price hikes can exceed actual adjustments (Cleveland Fed SoFIE; Coibion et al.).
4. Sectoral variation: Not all industries face equal pressures; some sectors report lower expected cost growth, moderating economy-wide impacts.

Implications

Looking ahead, inflation in 2026 is likely to be moderately persistent and expectation-driven. Planned firm-level price increases, wage pressures in tighter sectors, and near-term costs from AI and supply-chain adjustments could sustain prices above pre-pandemic norms. At the same time, anchored consumer expectations, credible policy guidance, forecast biases, and sectoral variation reduce the likelihood of sharp spikes. Overall, the economy may experience gradual but persistent inflation, reflecting the interaction between behavioral responses, structural costs, and broader macroeconomic conditions.

Conclusion: As headline inflation eases, firm-level strategies, labor dynamics, and AI investments will play an increasing role in shaping price trends. While inflation may not spike dramatically, the combination of behavioural and structural pressures suggests it could remain elevated relative to pre-pandemic levels without strong counterbalancing forces. Monitoring these dynamics alongside official data will be crucial in understanding how the U.S. economy navigates this transitional phase.