Small business owners have cited inflation as the biggest issue they face while running their business, according to research conducted by the National Federation of Independent Business (NFIB).
The NFIB Small Business Optimism Index for December revealed confidence increasing modestly despite the growing concerns about inflation, with the optimism Index rising by just half a percent. The other primary concern for small business owners continued to be worker shortages.
High Inflation the Biggest Concern for Small Business Owners
The cause of the high inflation is quite easy to identify as the COVID-19 pandemic continues to cause problems with supply chains. Shipping costs and frequent delivery delays have increased, causing inventories to deplete without adequate replenishment.
There are some signs that these supply chain bottlenecks will ease up soon, with the Institute for Supply Management conducting their own survey which revealed manufacturers had reported improved supplier deliveries during last month.
The NFIB survey also showed that the number of business owners raising average selling prices has actually decreased by 2% despite the highest inflation for over 30 years. The proportion of business owners planning to raise prices also decreased by 5%, though price increases still remain relatively frequent in the wholesale, construction and retail industries.
Inflation’s ‘Overwhelming Impact’
The Chief Economist of NFIB, Bill Dunkelberg, said: “Small businesses, unfortunately, saw a disappointing December jobs report, with staffing issues continuing to impact their ability to be fully productive. Inflation is at the highest level since the 1980s and is having an overwhelming impact on owners’ ability to manage their businesses.”
Federal Reserve officials and economists expect inflation will start subsiding at some point during 2022, though exactly when the burden on business owners will subside is yet to be known. The NFIB themselves intend to pressure state legislators to help business owners out during these difficult times.
Speaking about an unidentified state but in relation to all states, the NFIB’s State Director, Dawn McVea, said, “Small business owners here are facing the same challenges as those in other states: inflation, labor costs, supply chain disruptions. That’s why we’re asking the state legislature to put politics aside and work together to help job creators get through this.”
The NFIB’s monthly jobs report for December also highlighted how many small business owners are struggling to increase their workforce. A quarter of those surveyed said they couldn’t find the labor quality that they need and cited this as their biggest business problem in December.
Another 13% of business owners said that labor costs were their biggest business problem for last month, with 49% percent of owners reporting that they currently had job openings that they cannot fill.
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When you’re operating a business where your profit margin might be 3%-5% annually, then seeing that inflation is running at 7% annually is a major issue. And customers do NOT react well to price increases.