With inflation higher than it has been in four decades, small businesses are concerned for their futures.
Six out of ten U.S. small business owners worry that inflation would drive them out of business, according to a recent survey of over 500 small enterprises. A whopping 76% of those polled said they have had to increase their prices in 2021 to keep pace with rising costs.
The small businesses whose prices went up reported raising them by an average of 27%. A majority (51%) of respondents felt that raising costs has caused them to lose consumers.
Jeff Neal, the owner of The Critter Depot, which distributes lawn-and-garden composting worms and grubs, says that sales are down significantly from last and the year before.
“It has us concerned, and we’ve spoken to other farms, and it sounds to be rampant in our industry,” he said in an interview with The Epoch Times.
Neal thinks that people are cutting back on everything but food and shelter due to the high inflation rate.
In comparison to their larger counterparts, small businesses face more challenges in dealing with inflation-related expenditures and operational issues, said Wayne Winegarden, a senior fellow at Pacific Research Institute, a free-market think tank in California.
“Small businesses will typically have less negotiation leverage with suppliers and less ability to pass along higher operational costs to customers,” said Winegarden. “They are exposed to a more pronounced profit squeeze compared to larger businesses, consequently.”
Fewer options exist to reduce the expense of inflation for smaller businesses, Winegarden points out, increasing their financial vulnerability.
The National Association of Independent Company conducted a study of small-business owners, which revealed that expectations for a better business climate in the next six months had plunged to an all-time low.
According to the report, inflation has replaced “labor quality” as the top issue confronting small businesses.
In March, annual inflation in the United States reached 8.5%, its highest level since 1981. The food index increased by 8.8% year over year, while the energy index increased by 32%. In addition, the cost of housing increased by 5%, and prices are likely to continue to rise.
The producers’ price index, which measures the average annual change in selling prices from local production over time, went up by 11.2% last month, smashing expectations that inflation would fall soon.
The U.S. Chamber of Commerce urged the Biden administration and Congress to lessen the burden of rising inflation on businesses and address the labor shortage crisis to ensure that Main Street’s recovery continues.
“The medium-term prognosis is darkening,” said Nouriel Roubinione, one of the economists who accurately forecasted the U.S. financial meltdown and real estate bubble implosion of 2008.
He stated that if today’s stagflationary conditions persist, they could lead to more significant inflation, lower growth, and even recessions in many economies.