On March 16, 2022, the Federal Reserve raised interest rates by 0.25%, taking the federal funds rate from 0.25% to 0.50%. This marks the first time interest rates have been raised since December 2018. The Fed also released a set of projections indicating that rates could be raised again at upcoming policy meetings this year.

What is inflation?

Most people think of inflation as an increase in prices; however, it is really a measure of each dollar’s dwindling purchasing power – tracked using the Consumer Price Index (CPI) administered by the U.S. Bureau of Labor Statistics. As more money circulates in the national and global economy, each dollar bill becomes slightly less valuable. As a result, you need more money today to buy the same goods as yesterday.

Inflation’s Impact On Small Businesses

A new survey released today by online payment platform Veem shows how badly small business owners have been impacted by the recent rise in inflation, which has created crises for many of them.

• 41.5% of small businesses say they have experienced inflationary pressure in the last 1-3 months. This is compared to 25% of small businesses who say they have experienced inflationary pressure over the last 10-12 months.

• Nearly 40% of small businesses surveyed say that they feel inflationary pressures surrounding their cost of supplies.

To cope with inflation, 67% of small businesses have raised prices. Another four in ten (41%) report having decreased staff or taken out a loan in the past year (39%) in response to growing inflation pressures

“Having survived the pandemic, now small business owners are being hit with surging inflation. It is limiting their purchasing power and forcing small businesses to raise their own prices and absorb higher costs within already thin margins,” said Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce.

“We need policymakers to pursue policies that will reduce inflationary pressures, including addressing the worker shortage crisis, expanding trade, and reducing tariffs.”

What is causing the rise in inflation? 

Typically during a recession, unemployment rises sharply, and consumers reduce their spending as a result. However, the recession caused by the pandemic was unusual, as many jobs were protected by the government, and consumers saved up money ready to spend.

So, inflation has now risen because when the economy reopened, people spent much more money than they had during the lockdown. This caused the demand for things like food and drink, fuel, clothing, and meals out to soar.

Shortages of many items, including building materials and computer chips, only made this worse. And the lack of shipping containers and lorry drivers has made it more difficult and more expensive for businesses to get hold of goods – leading them to hike up their prices to meet the demand.

Ways To Reduce the Impact of Small Business Inflation

While many of the effects of inflation are unavoidable, there are some things you can do to minimize or delay the worst impacts, like price hikes, layoffs, or shutdowns.

Reduce discretionary spending

Try to eliminate, or at least reduce, the amount of nonessential spending. Delay facility improvements, supply purchases, and new equipment until economic conditions improve, unless they are critical to your operation.

Stock up on goods and supplies

By stocking up on products and raw materials, you may be able to get a lower cost per unit. This can also help you stay ahead of supply shortages.

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