2025 is a baseline for what sustained cost volatility looks like, S&P Global expert warns CFOs

S&P Global research projects a significant $1.2 trillion increase in corporate expenses for 2025 compared to initial expectations, leading to a 64 basis point contraction in global corporate margins, or $907 billion in lost profit. This profit erosion is partly transferred to consumers through higher prices ($592 billion) and partly absorbed internally as lower earnings ($315 billion), driven by factors such as tariffs, rising wages, logistics bottlenecks, and increased AI/automation spending. The findings underscore a new baseline of sustained cost volatility for CFOs, necessitating enhanced flexibility in budgets and supply chains.

Analysis

S&P Global research projects a significant $1.2 trillion increase in corporate expenses for 2025, surpassing initial budget expectations and signaling a substantial repricing of global costs. This surge is anticipated to contract global corporate margins by 64 basis points, translating to $907 billion in lost profit among covered companies. Approximately $592 billion of this profit loss is being transferred to consumers through higher prices, while $315 billion is absorbed internally as reduced earnings.

The primary drivers behind this cost escalation include unexpected tariffs, rising wages, persistent logistics bottlenecks, and increased capital expenditure on AI and automation. Daniel Sandberg of S&P Global Market Intelligence emphasizes that 2025 should be viewed not as an outlier, but as a new baseline for sustained cost volatility.

This report, drawing on forecasts from 15,000 analysts covering 9,000 public firms, highlights a dramatic shift in market expectations driven by policy, inflation, and investment priority changes. The scale of this $900 billion profit contraction underscores the need for CFOs to build greater flexibility into budgets and supply chains to absorb varied and ongoing cost pressures, rather than solely predicting shocks.

Key Decisions for Investors

• Investors should reassess corporate earnings forecasts for 2025, particularly for companies with high exposure to global supply chains and labor costs, given the projected $1.2 trillion expense increase and 64 basis point margin contraction.
• Focus on companies demonstrating strong pricing power to pass on costs to consumers, or those with robust operational efficiencies and flexible supply chains capable of absorbing internal cost pressures.
• Monitor sector-specific impacts of tariffs, AI investment, and wage inflation, as these factors are driving the broad repricing of costs and will disproportionately affect different industries.