We recently released our annual Local Pulse Report™, which highlights key trends with small businesses, and the results show that inflation is a rising concern among small business owners. The issue has steadily increased in significance throughout 2021, and now nearly one in five businesses stated it was their biggest concern going into the new year.
The inflation rate surged in 2021, growing more between March to September than at any point in 2020, according to data from the U.S. Bureau of Labor Statistics (BLS). In addition, inflation more than doubled 2020’s highest increases for at least five straight months in 2021.
Seventy percent of businesses stated they had been hit with increased costs associated with products and services. Sixty-five percent reported cost increases of more than 20%.
This has prompted small businesses to increase the prices of products and services. According to the report, 52% of small businesses raised their prices in the second half of 2021. This will continue in 2022, with 25% expecting to raise prices again in the first quarter. Price increases happen all the time, but the amount of the gains is concerning. Forty percent of businesses stated they had to increase prices by more than 20%. At this rate, owners are getting concerned about the financial health of their business.
Finding Ways to Reduce Expenses
Working with lean budgets is nothing new for small business owners; however, they are looking to save money wherever they can with these market conditions. Forty-five percent of businesses reduced inventories, 40% actively sought technology to help reduce expenses, and 30% reduced workforce expenses. What they really want is the government to help out.
Federal Reserve officials and economists expect inflation will start subsiding at some point during 2022, though exactly when the burden on business owners will diminish is yet to be known.
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