Inflation concerns hit fever pitch for small business owners

Small businesses are growing 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 survey from the Chamber of Commerce and MetLife published on Wednesday, which found that a stunning 90% of small business owner are concerned about the ramifications of the highest inflation in nearly four decades. More than half – 54% – of respondents said they were very concerned, an increase of 23 percentage points from the beginning of 2022.

“In recent quarters, there has been optimism from small businesses who still felt good about how their business is doing,” said Tom Sullivan, vice president of small business policy at the Chamber of Commerce. “However, inflation is really hitting small business hard, and that reality is negatively impacting their confidence, their ability to hire, invest in their businesses, and grow.”

Inflation – which came in hotter than expected in August, climbing 8.3% on a year-over-year basis – now ranks as the biggest financial challenge for small businesses. About 45% of owners said that steeper prices is their single top concern, an 11 percentage point increase from the beginning of the year. That compares to 28% who ranked supply chain bottlenecks as the No. 1 issue. Other concerns include revenue, rising interest rates and COVID-19 safety protocols and compliance.

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small business

People walk by a sign that reads, “support a small business” outside of 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 businesses said they were raising costs for consumers. On top of that, nearly half – 46% – reported taking out a loan in order to cover higher costs, while about 35% have cut payroll.

Small business owners are also increasingly uneasy about the economic outlook. About 88% of owners expressed concern about the US entering an economic downturn in the next year, with 54% saying they are “very concerned.” The majority of small business owners (59%) believe the economy is either in “somewhat poor” or “very poor” health.

Still, when asked to choose between reducing inflation or avoiding an economic downturn, a majority – 59% – said the priority now should be combating higher prices, while 41% preferred preventing a recession.

Grocery store inflation

Shoppers walk through the milk and cream section 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 remain relatively optimistic about their operations and expectations for the future. About 66.8 said their business is in good health; that’s up from a 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.

California gas prices

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 hoped to see inflation cool off since then as supply chains improved, consumer prices remain stubbornly high.

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

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