Small Business Confidence Hits Lowest Level in Over 11 Years Amid Rising Inflation Concerns

In the midst of receding inflation in other sectors, small business confidence has hit a concerning low point. According to the National Federation of Independent Business (NFIB), its survey for March showed a reading of 88.5, the lowest level since December 2012, down nearly a point from February. This has raised worries among proprietors who view inflation as a persistent issue.

Impact of Inflation

One of the most pressing concerns for small business owners is rising costs, with a quarter of respondents citing this as the biggest problem. In particular, higher input and labor costs have been highlighted as key issues. A net 28% of businesses reported raising average selling prices for the month, and 33% planned additional price hikes, according to seasonally adjusted data provided by the NFIB.

Compensation and Labor Market

Escalating costs have also led to a net 38% increase in compensation, reflecting a 3 percentage point rise from the previous month. This comes in the wake of the Labor Department's report indicating a 0.3% increase in average hourly earnings in March and a 4.1% rise from a year ago.

Indicators of Inflation

While the survey by NFIB points towards persisting inflation concerns, other indicators show a different trend. The annual inflation rate in February was measured at 2.5% according to a Commerce Department report, with a 2.8% level when excluding food and energy. The consumer price index, expected to be released soon, is projected to show a 3.4% headline rate and 3.7% on core, surpassing the Fed's 2% annual inflation target.

Inflation Expectations and Projections

Inflation expectations have remained relatively stable in recent months, with a New York Fed survey showing little change in the expected rate for the next year. However, concerns about rent increases have surged, with respondents projecting an 8.7% rise over the next year, indicating potential challenges for both consumers and businesses.

Outlook for Major Components

Respondents to the Fed survey also expect substantial price increases for various components, including a 4.5% rise in gas prices and a 5.1% increase in food prices over the next year. These projections highlight the widespread impact of inflation across different sectors.