Cost disruptions are no longer confined to manufacturing. They are gradually spreading to non-manufacturing industries. The Chung-Hua Institution for Economic Research (CIER) released its semiannual Manufacturing Purchasing Managers’ Index (PMI) report, which identified upward pressure on purchase prices, labor costs, and selling prices across manufacturing and services. Rapidly expanding AI demand and shortages of critical raw materials, labor shortages, and recovering consumption are converging. Businesses now face more than simple cost increases as supply availability, pricing, and profit margins are all coming under pressure.
Shin-Hui Chen, an Associate Research Fellow at the Taiwanese Economy Research Division of the CIER, said the March 2026 manufacturing survey had already identified situations in which suppliers had “stopped issuing quotes” or provided “no delivery date.” Some companies even reported supplier lead times stretching to 70 weeks. Further investigation found that some suppliers were not simply out of stock. Instead, they were refusing orders and supplying only customers willing to accept price increases. This indicates that cost disruptions have expanded from a pricing issue into a supply availability problem.
Demand Remains Strong, with Price Pressures Expected to Persist into 2027
Persistently strong demand has made cost pressures difficult to ease. Chen noted that forecasts from the Directorate-General of Budget, Accounting and Statistics as well as the PMI outlook both indicate that companies remain relatively optimistic about business conditions over the coming year. Strong growth is expected to continue.
The survey showed that manufacturers still expect to raise prices in the second half of the year, while 27% of respondents believe pricing pressures will persist into 2027. Companies are currently most concerned about energy and raw material prices, as well as shortages of critical raw materials and components. To address supply risks, companies are not simply stockpiling large quantities of inventory. Instead, they are adopting multisource and multiregional procurement strategies to strengthen supply chain resilience.
Notably, companies’ ability to pass on costs may gradually weaken. While some industries were able to pass on costs in full during the first half of the year, businesses expect to reflect only part of their higher costs in selling prices during the second half. The widening gap between costs and selling prices may place further pressure on profit margins.
AI Demand Spills Over Makes Electrical Machinery and Equipment a New Focus of Price Increases
Rapidly expanding demand across the AI supply chain has also become a major source of cost pressure. Among surveyed manufacturers, 17.6% have already entered the semiconductor supply chain, while another 10.6% plan to do so. This means that nearly 30% of manufacturers have been affected by demand from the AI supply chain.
The electrical machinery and equipment industry has benefited from demand related to data centers, power infrastructure, cooling systems, and transformers. Purchase prices in the industry are projected to rise 7.5% for the full year of 2026, while average selling prices are expected to increase 7.7%, indicating a full pass-through of costs. By comparison, purchase prices in the electronics and optical industry are forecast to climb 24.4%, while average selling prices are expected to rise only 15.2%, indicating that companies remain unable to pass on the full increase in costs.
The spillover effects of AI have also extended to non-manufacturing industries. The survey showed that 29.2% of non-manufacturing respondents have already entered or plan to enter the AI supply chain. Another 26.8% reported operational changes driven by demand from the AI supply chain. The finance and insurance, transportation and warehousing, and construction industries have all benefited to varying degrees from AI-related demand. The construction industry has gained from projects involving semiconductor and advanced-process manufacturing facilities.
Service-Sector Costs Prove More Persistent as Labor Shortages Become the Biggest Pressure
Non-manufacturing industries also face rising costs, but service prices are more persistent than manufacturing prices. Chen noted that non-manufacturing purchase prices are projected to rise 4.3% for the full year of 2026, up from 2.2% last year. Service prices are expected to increase 2.5%, also higher than last year’s 0.7%.
Labor costs are the primary source of pressure for non-manufacturing industries. Annual payroll costs are projected to rise 3.8%, well above the 1.8% increase expected in manufacturing. Structural factors such as a declining birth rate, labor shortages, and minimum wage increases have created a dilemma between labor costs and service capacity. Companies must hire more workers to expand capacity, but labor shortages constrain revenue growth.
However, recovering consumer demand continues to support non-manufacturing industries. Full-year revenue is expected to grow 10.6%, significantly outperforming the past two years. The Directorate-General of Budget, Accounting and Statistics estimates that real private consumption grew 5.52% in the second quarter, a marked improvement from the same period last year.
Cost Pressures Gradually Spread as Inflation Risks Warrant Attention
Cost disruptions may ultimately spread from businesses to consumers. Data from the Directorate-General of Budget, Accounting and Statistics show that service prices rose 2.39% in the first half of the year. In addition, 24% of surveyed non-manufacturing companies believe pricing pressures will persist into 2027, indicating that upward pressure on service prices may prove longer-lasting.
Overall, manufacturing and non-manufacturing industries now face multiple pressures from strong demand, rising costs, tight supplies, persistent labor shortages, and AI spillover effects. AI investment and recovering consumption are supporting economic growth. However, if supply chain bottlenecks, labor costs, and energy and raw material prices continue to rise, corporate profit margins and overall prices could come under greater pressure. Beyond monitoring whether demand remains resilient, businesses and policymakers should strengthen the resilience of critical material supplies, talent pipelines, and energy systems to reduce the risk of cost pressures spreading downstream and reaching consumers.
Author: CIER Editorial Team
Date: August 10, 2026