Inflation is red hot, soaring to 6.8% in November, the highest in nearly four decades

Businesses across the country, from restaurants to retail, must decide when, not if, to raises prices and by how much.

Transcript

STEVE INSKEEP, HOST:

Seems like everything is getting more expensive from T-shirts to T-bone steaks, even products that don't begin with T. With inflation now the highest it's been in decades, more businesses have to decide not whether to raise prices but how often and by how much. Here's NPR's Scott Horsley.

SCOTT HORSLEY, BYLINE: If you think your grocery bill's gone through the roof this year, you can appreciate what's happened to Cameron Mitchell. He's shopping for about 60 restaurants he runs in cities around the country and says his cost for ingredients has soared by $9 million. As a result, Mitchell's been forced to raise his menu prices three times this year.

CAMERON MITCHELL: There's not a restaurant out there today that can survive without taking the price increases. I think people understand that. They see it in the grocery stores. They see it at the gas pumps.

HORSLEY: Mitchell runs a wide range of restaurants from high-end steakhouses to a Mexican cafe. His costs for beef and seafood have climbed especially high. But even produce now carries an extra delivery charge to help pay the truck drivers. Mitchell's having to pay his cooks and dishwashers more as well.

MITCHELL: In my opinion, the $15 minimum wage argument is out the door because nobody's paying under $15 anymore. All of our associates are seeing increased wages, which is a good thing, I think, for our industry.

HORSLEY: Mitchell says knowing when and how to pass those costs onto customers is a mixture of science and art. A diner buying a $66 filet mignon in New York might have more flexibility than someone ordering a $13 cheeseburger in Dublin, Ohio. For Peter Elitzer, who runs a chain of discount clothing stores, any price hike is a big deal.

PETER ELITZER: Our whole business model is based upon value 95, 98% of our merchandise sells for $30 or less. It's really middle America who's going to feel the biggest pain on this.

HORSLEY: But, like Mitchell, Elitzer has seen his own costs go up. Starting pay for store employees has risen to an average of $15 an hour. And the cost of merchandise, most of which is shipped from Asia, has risen sharply.

ELITZER: You can't absorb 20% on average increase in costs and put out the same retail. It just doesn't work.

HORSLEY: So Elitzer has had to sharpen his pencil, raising prices on some items and dropping others where the cost has climbed too high.

ELITZER: If the $5 shirt goes to six, it's probably not going to hurt things too much. If something that's been 19.99 has to be 24.99, you're going to sell less of it.

HORSLEY: Businesses across the country are making similar calculations. And in many cases, they're finding consumers will pay more. A survey by the National Federation of Independent Businesses found nearly six out of 10 firms are raising prices. To be sure, some of the biggest drivers of inflation have started to retreat. Gasoline prices have dropped over the last month. And natural gas prices are way down. Matthew Palmer of IHS Markit says that's easing concerns about sky-high heating bills this winter.

MATTHEW PALMER: Prices have decreased about 40% from the peak we saw this fall. And mild weather is certainly playing into that. But on balance, I think, the market is more adequately supplied than it was, say, two or three months ago.

HORSLEY: But other factors, like rising rent, could keep inflation stubbornly high for months to come. Peter Elitzer started his clothing business back in 1970. And he remembers what persistently high inflation feels like. It steadily eats away at people's buying power. But it can also be a motivator for bargain-hunting shoppers.

ELITZER: There is the strong tendency to feel, I better buy it now because it could be more expensive if I buy it later. It's fundamentally unhealthy for the economy. It's really unfair for the consumer. But as a retailer, it isn't necessarily a big negative.

HORSLEY: The danger is if people get used to rising prices and come to think they're going to keep climbing, the more likely it is that they will.

Scott Horsley, NPR News, Washington.

(SOUNDBITE OF FRAMEWORKS' "SAND AND STONE") Transcript provided by NPR, Copyright NPR.