Dive Brief:
- Small businesses consider inflation their biggest challenge, and the proportion of companies that raised prices last month surged to a 48-year high, the National Federation of Independent Business (NFIB) said Tuesday.
- “Inflation continues to be a problem on Main Street, leading more [small business] owners to raise selling prices again in February,” NFIB Chief Economist Bill Dunkelberg said, noting that labor shortages and supply chain disruptions have undermined earnings and sales.
- An index of business optimism fell to the lowest level since January 2021, NFIB said in a survey report, adding that nearly half of companies (48%) reported job openings that could not be filled.
Dive Insight:
The NFIB findings may understate inflation worries among small businesses. The prices for commodities such as oil, metals and grains have soared since NFIB completed the survey at the end of last month, just days after Russia began an invasion of Ukraine on Feb. 24.
Business sentiment is “set to get worse,” according to Ian Shepherdson, chief economist at Pantheon Macroeconomics. A continued decline this month in the Standard & Poor’s 500 index, an influential factor in the NFIB’s measure of optimism, would darken the business outlook.
Meanwhile, a one-month, 19% surge in U.S. gasoline prices — from $3.44 per gallon on Feb. 7 to $4.10 per gallon on March 7 — will probably push up the proportion of businesses that identify inflation as their biggest problem, Shepherdson said.
The NFIB findings align with a survey by the U.S. Chamber of Commerce, which found that one out of every three small businesses consider inflation their toughest challenge.
In response to rising prices, 67% of small companies have raised prices, 41% have reduced staff and 39% have taken out a loan, the chamber found in the survey of 750 small business owners conducted with MetLife from Jan. 14 until Jan. 26.
Inflation is limiting “purchasing power and forcing small businesses to raise their own prices and absorb higher costs within already thin margins,” according Neil Bradley, the chamber’s executive vice president and chief policy officer.
Rising prices for months have disrupted CFO budgeting, risk management, forecasting and pricing, and show no signs of easing.
The producer price index for final demand, a measure of what suppliers charge, jumped 9.7% in January from the prior year as the pandemic continued to crimp supply chains in industries ranging from housing to technology to autos.
The Federal Reserve’s preferred measure of price gains — the core personal consumption expenditures (PCE) price index — increased in January to a 38-year high of 5.2% compared with the prior year, according to the Labor Department. The central bank has set an inflation target of 2%.
The Fed will probably begin raising the main interest rate from a record low at a March 15-16 meeting of policymakers, mindful of the need to “add to financial stability, not to create uncertainty,” Chair Jerome Powell said Wednesday.
Fed policymakers “think it’s appropriate that we engage in a series of rate increases over the course of this year and also let our balance sheet shrink,” Powell said in congressional testimony, adding he favors a quarter-point increase in the benchmark interest rate.
Price increases among small businesses were most common in retail, wholesale, construction and manufacturing, according to NFIB.
