Inflation Remains a Headache for Small Business Owners

According to a new study that showed a decline in small businesses’ confidence in February, inflation continues to be the primary concern of these companies. During the month of February, the Optimism Index issued by the National Federation of Independent Businesses dropped to 89.4. 26 months in a row, it has been lower than the average of 98 for the past half-century. Twenty-three percent of owners of small businesses reported that inflation was their primary issue, which is an increase of three percentage points from January, when the primary concern was the quality of their workforce.

It is still a high level of inflation. The Labor Department reported this week that prices increased by 0.4% from January to February, which is an increase from the 0.3% rate seen in the prior month. Consumer prices increased by 3.2% in comparison to the same month a year ago, which is somewhat greater than the increase seen in January. Prices that are considered to be “core” also increased by 0.4% from January to February, excluding the cost of food and energy sources. Compared to what is required to bring inflation down to the 2% objective that the Fed has set, this is a faster rate. Inflation at the core level is regularly monitored in order to have an idea of where inflation is most likely going.

Small business owners are cutting back on their spending as they struggle to keep up with inflation. There was a five percentage point decrease from January to February, with 54 percent of owners reporting that they had made capital expenditures in the past six months. Out of those who made expenditures, 35 percent reported spending money on new equipment, 23 percent on vehicles, and 15 percent on facilities that were either improved or enlarged.

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