NEW YORK – Dont be misled by reports that inflation is tame. For small-business owners, its a threat to profits and expansion plans.
An 8 percent increase in the cost of eggs over the past year is eating away at restaurants and bakeries. Cottons 14 percent increase is hurting clothing manufacturers and retailers. And any business that sends somebody on a sales trip is bearing the brunt of an 8 percent increase in jet fuel or 7 percent rise in gasoline.
If this were a normal economy, companies could pass along the cost of doing business to customers. But these days, customers are demanding to pay less, not more. As a result, small businesses are often left with no options.
You have to absorb a lot, says Celeste Hilling, whose skin-care company has seen travel costs rise 30 percent in the past year after a 20 percent gain the year before. Rising fares, baggage fees and hotel bills are to blame.
Many companies have to adjust the way they operate. Hillings Skin Authority, based in Carlsbad, Calif., is doing more training through online seminars rather than in person.
The kind of numbers that Hilling deals with may surprise anyone who believes that the governments Consumer Price Index tells the story of inflation. In the 12 months that ended in March, the CPI rose 2.7 percent. Subtract food and gas as some economists do, and whats left is called core inflation. It rose 2.3 percent. Thats close to the target of 2 percent set by the Federal Reserve, which sets monetary policy so inflation doesnt get out of hand.
But prices that businesses pay for energy, raw materials, supplies and services have gone up much more sharply. And theyre expected to keep rising because demand for many goods and services is soaring in countries like China and India. That offsets slower demand in the U.S. and Europe and sends prices higher worldwide.
Chad Moutray, chief economist with the National Association of Manufacturers, says small businesses cant buy in bulk – and negotiate the lower prices – like larger companies can. And, he said, theyre less likely to pass along their higher prices to customers.
Lorne Campbell, president of Occasionally Cake, two upscale bakeshops outside Washington, D.C., has refrained from raising prices since his company was launched in 2009.
A small business is about personal relationships. Its about trust, he says. A large faceless corporation doesnt have to look at their customers and say, Mrs. Smith, you and your daughter are going to have to pay extra for a cupcake today.
Campbell estimates that hes paying 10 percent to 12 percent more for ingredients and other supplies than he did a year ago.