Rising
inflation
is the top concern for
small business
owners as the
Federal Reserve
gears up to raise
interest rates
for the first time in years.
The MetLife and U.S.
Chamber of Commerce
Small Business Index survey, conducted in late January, found that 85% of small business owners say they are concerned about the effects of inflation on their business, up from 74% last quarter. Almost half of small business owners, 44%, said they are very concerned about the higher prices.
Additionally, 76% of those surveyed said they are finding it difficult to manage higher costs because of inflation, while about 3 out of 4 owners said higher prices have had a significant effect on their businesses over the past year.
Consumer prices
rose 7.5%
in the 12 months ending in January, the fastest pace of inflation in four decades and a sizable half percentage point increase from
December’s number
. Prices rose for a wide range of items, including housing, cars, and groceries. Inflation has badly damaged President Joe Biden’s approval ratings and sapped support for his agenda.
POWELL SIGNALS FED WILL HIKE RATES THIS MONTH DESPITE UNCERTAINTY OVER UKRAINE
Inflation has not only grown to soaring highs, but it has also increased at a rapid pace. Just less than a year ago, when the Chamber conducted the same survey, only 16% of small business owners cited inflation as a big concern.
Because of the higher prices, nearly 70% of small businesses report they have had to raise their prices, while 41% of owners said they have had to downsize by decreasing staff in order to cope.
Supply chain
snarls have also plagued the country. The pandemic created a situation where ships were lined up outside ports, factories struggled to hire and retain workers, and truck drivers were in high demand. After inflation, small business owners cited supply chain problems as their second biggest concern.
More than a quarter of the small business owners surveyed said that supply chain problems are their biggest concern, while slightly fewer, 24%, pointed to COVID-19 as their top trepidation — both of those were dwarfed by the 33% who said inflation was the biggest concern.
A majority of small businesses, 63%, said that the supply chain had been disrupted by the pandemic.
The Federal Reserve plans to hike interest rates for the first time in years after the next meeting of the Federal Open Market Committee this month. The Fed is preparing to act more hawkishly in response to
swirling inflation
and is expected to hike rates several times this year.
Raising interest rates will have ripple effects across the economy, including
pushing up mortgage rates
and possibly causing some turmoil in the stock market. Small business owners are expressing anxiety about the planned hikes, with 70% reporting that they are concerned about how the hikes will affect their businesses. Of that 70%, 29% said they are very concerned about the rising rates.
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Fed Chairman
Jerome Powell
testified before Congress
on Wednesday and Thursday. He said that despite economic concerns generated by
Russia’s invasion of Ukraine
, the central bank is teeing up to hike rates in two weeks.
“Our monetary policy has been adapting to the evolving economic environment, and it will continue to do so,” he told lawmakers. “We phased out our net asset purchases with inflation well above 2% and a strong labor market. We expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.”
