Many Utahns may have breathed a sigh of relief when April’s inflation rate fell to 3.4% after March’s uptick to 3.5%. However, this figure still hovers above the Federal Reserve’s target of 2%, creating some uncertainty in the economic outlook. For business owners across our state, the persistence of inflation continues to create roadblocks and challenges.
Inflation has become the predominant worry for Americans, as highlighted by a recent Gallup poll where 4 in 10 respondents named it their biggest concern. This sentiment is echoed strongly among small-business owners, who find themselves particularly vulnerable.
A survey conducted in April polling over 2,000 small-business owners revealed a stark decline in optimism, regressing to early 2023 levels. One in four (24%) small-business owners say inflation has reached a peak, but most small-business owners (75%) expect inflation to continue to rise. More than 1 in 3 (37%) small-business owners view inflation as the biggest threat to their business, nearly three times higher than other issues like consumer demand and labor shortages.
The effects of inflation on small businesses are multifaceted and profound. The rising prices of critical business inputs such as raw materials, inventory and utilities make it more expensive for small businesses to operate. Coupled with the need to raise wages to keep pace with the cost of living, small businesses are seeing much of their profit margins erode.
As consumers face higher prices for essentials, their disposable income for nonessential purchases dwindles. This shift leads to reduced sales for small and local businesses, compelling them to adopt strategies that can keep them afloat.
Furthermore, higher interest rates, a common tool to combat inflation, exacerbate these challenges by making borrowing more expensive. This limits their ability to finance day-to-day operations, expansion or new investments.
In the midst of these challenges, we can all do something to support the small businesses that serve as the backbone to our economy and provide character to our communities. That is the simple and powerful act to shop local whenever you can. Community support is essential, and by choosing to spend your dollars at neighborhood stores and services, you can help sustain these vital parts of our community and economy.
Derek Miller is the president and CEO of the Salt Lake Chamber, Utah’s largest and longest-serving business association.