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Inflation economic shock complete as Main Street tipping point reached


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This is not the only indication that the Consumer Price Index has reached its highest level in over 40 years. inflation is extendingInstead of letting go of its control over the U.S. economic system in 2022. Many small American businesses now say that customers are paying more for their products and services.

According to the CNBC/SurveyMonkey Small Business Survey report, 74% of small-business owners say that they have experienced rising supplies costs. However, 47% of those businesses passed on the cost to their customers in the first quarter. This is up from 39% Q4 2021. If inflation continues, 32% of them expect to have their prices increase soon. Their expectation is for stubborn inflation. More than 80 percent of small-business owners anticipate that inflation will continue to be a problem six to twelve months later (55% believe it is very likely). CNBC|SurveyMonkey data.

Main Street worries about inflation have a connection to how small businesses view the supply chain. Seventy-five percent of them believe that these issues will be a problem within six months. There is also a low level of confidence in the Federal Reserve’s ability and capability to manage inflation, as 71% of small businesses owners do not believe it can.

CNBC/SurveyMonkey’s online survey was taken among 2,227 small-business owners. It took place January 24-30, 2022.

Laura Wronski (senior manager, research science), stated that inflation has an underlying problem. MomentiveCNBC conducts its survey through. We’ve grown accustomed to the rising and falling Covid waves and have allowed businesses to adjust their business plans to take advantage of this. However, no one knows the rate or extent of inflation, so unpredictability can cause some anxiety,” she stated, adding that the Fed lacks faith adds to this uncertainty.

It is not getting any better. Michelle Pusateri of Nana Joes Granola, a San Francisco-based company that makes Nana Joes Granola said it had gotten worse.

Nana Joes Granola saw a surge in sales during Covid, when demand for packaged goods skyrocketed. But, the situation is now dire. The hyper-growth seen earlier in the pandemic has been overtaken by price and supply issues, and profit margins have been squeezed.

Nana Joes Granola bought more ingredients than she could afford and made lower prices to meet the demand. Pusateri stated that while stockpiling inventory may be a temporary solution, she believes it will become an ongoing business problem. The inventory held by her company was $94,000 at the end 2019 but had increased to $327,000.

Pusateri expressed concern that more businesses would need more inventory.

In a supply chain that is broken, buyers are losing their leverage

Many ways small businesses have lost their leverage with suppliers. Big buyers tend to be more comfortable in transactions while small buyers cannot order in smaller orders (e.g. Half-pallets are not allowed or you must rely upon contract pricing.

There are lots of ingredients in high demand. Farmers, vendors and brokers all have access to their pricing information. Pusateri is an active member of Goldman Sachs 10,000 Small Businesses Voices. 84% of Main Street respondents indicated that they were interested in the survey. a recent surveyInflation has been worse for them than September. Only 13% believe supply chain issues will decrease in the first half (2022).

Nana Joes Granola has experienced a massive price rise in oats. Pusateri doesn’t expect any pricing pressure to drop given current supply/demand levels.

The impact of these increases on smaller companies is more than an increase in input cost. Eric Groves is co-founder of Alignable and the CEO. tracking the impact of inflationThe percentage of small businesses that are experiencing the greatest cost increases was highlighted in the report. Small businesses make up 78%, with 29% saying their cost are higher than pre-pandemic. However, the majority of businesses, which is 29%), say that they have seen price increases of 25 to 25% for business inputs.

Small business owners will find it much easier to raise costs without having customers react negatively. However, while more than 50% pass on the increased cost to customers, just 9% of them tell Alignable that they are able to do so at a rate above their breakeven point.

Groves stated that “costs have increased more than they can pass it down to others, and that is what’s critical for recovery.” That’s the source of stress. He said that it’s not revenue, but the squeeze of margins… which is what’s happening in their pockets.”

Small businesses are faced with a difficult task when trying to decide how much to charge customers without losing recurring revenue. Many small businesses have not recovered from the shock of Covid. Alignable found that 35%-37% percent of companies say their pre-Covid customers have returned.

Although small business owners are generally optimistic, Alignable data suggests that they have become more pessimistic about the timeline of their recovery. Small business owners had expected their revenue levels to return to pre-Covid level by June 2022. This has now been delayed by one year, to the mid-2023.

Pusateri claims that inflation has begun to impact the demand for her company’s premium granola. People are beginning to examine what they spend their money on. She said that it is more about people looking at their pocketbooks.

A small business claims it is stuck with inflation

NFIB’s most recent quarterly surveyIt was found that the proportion of small business owners who have to increase their prices has risen to 60%. This reading is the highest in NFIB data from Q4 1974.

Kevin Kuhlmann who heads the NFIB’s government relations department said, “They are being squeezed by supply chains disruptions, inflation, workforce shortages, and had already had to reinvent themselves several times over the past few years and are running out options.” He said that they are adapting… however, you cannot increase prices too much to cause a loss. 

Nana Joes Granola used a Covid disaster loan for economic injuries from the Small Business Administration in order to finance its inventory purchasing. However, that program was terminated in 2021 and it is not clear if the federal government will reinstate the financing. Pusateri explained that now she must consider business loans or taking in investors. It is something she has never had to do before.

Kuhlmann stated that there are not many options when it comes to issues such as inflation or the supply chain. Even if inflation can be controlled, it does not necessarily mean that prices will drop. He stated that it was a “new normal”. It’s important to reduce price growth. This frustrates business owners.

The economy’s small businesses tend to be a slower indicator than the leading one, however, Mark Zandi (chief economist, Moody’s Analytics) said that the rising worries of Main Street is “a worrisome sign that inflation will continue to rise.”

Zandi stated that small businesses tend to price their products lower than larger competitors. This could indicate inflation becoming more severe. Because small businesses are not likely to consider themselves having long-term pricing power, Zandi said that if they feel more empowered, this could be a sign of inflationary pressures being wider-based.

Main Street support and confidence for Biden

CNBC/SurveyMonkey Small Business Confidence Index scores continue to remain at all-time lows. They currently stand at 44 out 100. This is unchanged from Q4 2021, and almost identical to the 43 score from last year. SurveyMonkey data.|SurveyMonkey data.

Political factors are a factor. Only 33% say conditions are good, compared to 33% who support President Biden.

Although the number of Democrats that support Biden is high at 83% (which was a record), this quarter saw a six-point drop in their support. 49 percent of small-business owners who are Democrats described the current conditions as excellent, while just under half (59%) said so. While a majority of Democrats believe that inflation will continue to be a problem in six months (67%) it is significantly less than 92% who expect it to stay the same. The 61% who believe the Fed can curb inflation are more likely than those surveyed by Republicans (61% vs 11%).

Some sectors in the small business sector are most exposed to global supply chains. There are however positive indicators throughout the industry. Overall, businesses are doing a great job in passing on costs to customers. Corporate profit margins are higher than ever before, back to World War II. But the greatest benefit of pricing power is accruing to the larger corporations.

Small businesses do not typically have high cash reserve levels — according to Alignable it is on average 34 days of cash on hand — leading to a situation in which any kind of financial hit is very difficult to recover from. Groves stated that businesses will struggle to recover from Covid as they try to rebuild their recovery.

The key to business health is business-to business payment transactions. Companies with less than 500 employees pay bills on schedule, so even small businesses are not showing signs of stress. Zandi indicated that, at least for now, the employees are managing.

Like consumer sentiments, sentiment for small businesses is more reactive. Small business sentiment tends to shift faster in short-term. Current fuel prices and gasoline prices are important inputs for small businesses. Zandi stated that, if anything else, Main Street’s latest data is proof positive there is a problem.

Pusateri said she felt “a lot less self-confident now”, after having survived Covid and seeing hypergrowth in the early part of the pandemic. “I believed we could get through 2020. But we were still making money. Then, suddenly, we couldn’t find the ingredients we needed.”

Nana Joes Granola saw a 135% increase in profit during the package foods boom, but is now operating below breakeven when it comes to pricing pressures from all angles. The company had to alter its policy of free shipping for direct consumers due to rising freight costs, low wage inflation, and lack in leverage as a buyer. “We are being steamrolled. Pusateri stated that price rises are everywhere he looks. 

Zandi, economists and the financial market expect inflation to moderate in 2022. But he stated that “the small-business owners will be right” if it does not happen quickly.

Puasteri declared that inflation “is not going to go away any time soon”. “We’ll be trapped in this.”