Inflation worries peak for small business owners

Inflation worries peak for small business owners

Small businesses are increasingly worried about the financial impact of high inflation, with an overwhelming majority of owners saying the worst is yet to come.

That’s according to a new Chamber of Commerce and MetLife survey released Wednesday, which found that 90% of small business owners are concerned about the ramifications of the highest inflation in nearly four decades. More than half – 54% – of respondents said they were very worried, an increase of 23 percentage points from the start of 2022.

“Over the past few quarters, small businesses have been upbeat and still feeling good about their business performance,” said Tom Sullivan, vice president of small business policy at the Chamber of Commerce. “However, inflation is hitting small businesses really hard, and that reality is having a negative impact on their confidence, their ability to hire, invest in their businesses, and grow.”

Inflation – which was stronger than expected in August, climbing 8.3% year-on-year – now ranks as the biggest financial challenge for small businesses. About 45% of owners said rising prices are their top concern, an increase of 11 percentage points since the start of the year. This compares to 28% who ranked supply chain bottlenecks as the #1 issue. Other concerns include revenue, rising interest rates and security protocols and compliance with COVID-19.

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People walk past a sign that reads ‘support small business’ outside a store in Chelsea on March 21, 2021 in New York City. (Noam Galai/Getty Images/Getty Images)

To cope with higher prices, about 7 in 10 companies said they were raising costs for consumers. On top of that, nearly half – 46% – said they took out a loan to cover higher costs, while around 35% reduced their payroll.

Small business owners are also increasingly worried about the economic outlook. About 88% of homeowners expressed concern about the United States entering an economic downturn next year, with 54% saying they were “very worried”. The majority of small business owners (59%) think the economy is in “fairly bad” or “very bad” health.

Yet when asked to choose between reducing inflation or avoiding an economic slowdown, a majority – 59% – said the priority should now be tackling rising prices, while 41% preferred preventing a recession.

Grocery Store Inflation

Shoppers walk through the milk and cream aisle of a supermarket in Montebello, California on August 23, 2022. ((Photo by FREDERIC J. BROWN/AFP via Getty Images) / Getty Images)

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Despite the headwinds, small businesses said they remained relatively optimistic about their operations and their expectations for the future. About 66.8 said their business is healthy; that’s up from the low of 39.5 recorded in 2020, at the height of the COVID-19 pandemic.

The survey was conducted between April 29 and May 17.

Gasoline prices in California

A Chevron gas station displays the price per gallon at over $7 in Los Angeles, California on June 22, 2022. ((Photo by FREDERIC J. BROWN/AFP via Getty Images) / Getty Images)

Although economists had hoped inflation would subside since then as supply chains improved, consumer prices remain stubbornly high.

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Despite expectations of a slowdown in August, prices actually rose 0.1%; what is even more concerning is that core prices – which exclude the more volatile measures of food and gasoline – have also risen more than expected, a sign that underlying inflationary pressures in the economy remain strong.

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