The consumer price index jumped at an annual rate of 4.2% in December, compared to the same month last year, according to the U.S. Bureau for Labor Statistics.
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Small businesses say they are constantly trying to find the right balance.
Russell Lund helps run his wife Tiffany's bakery in Martinez. He says the price of baked ingredients increased, and they have to adjust.
"We are committed to making quality cakes," Lund said.
"She doesn't want to get cheap products. She wants to get quality products, but that does influence the price. It also influences our labor costs as well," he explained.
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Lund says they normally receive strong reviews about their cakes. However, recently they said they got their lowest online review -- because of the cost. He says they always have to walk a fine line to help grow their business and make their prices good for customers. A big hurdle is competing with bigger businesses.
"The bigger businesses, they get a lot more discounts because they order a lot more stuff," he said. "We can't order that much stuff, so we are paying a little bit more for the quality products."
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It's a similar issue for Quin McCormick, the owner of Leather and Moss Mercantile. She says she is always trying to determine the prices for her products.
"There is definitely a lot of math, and a lot of planning and strategizing and comparing to previous months," she said. "You definitely have to be aware of what your purchase price is and what your mark up is, and what people are comfortable buying at, especially in your area."