Inflation now wears away at pandemic-weary businesses
NEW YORK — Small businesses that endured shutdowns and lower revenue during the COVID-19 outbreak now must contend with another crisis: spiking prices for goods and services that squeeze profits and force many owners to pass the increases along to customers.
Mickey Luongo’s company, Total Home Supply, is paying as much as 15% more than it paid pre-pandemic for the air conditioning and heating equipment it sells to other businesses and consumers. His suppliers have raised their prices because they’re paying more for raw materials, components and shipping. Luongo says some of his customers have pushed back on higher prices.
“We had one contractor who totally understood the price increase and was OK with it while other consumers get mad at us and think the increases are our fault,” says Luongo, co-owner of the Fairfield, New Jerseybased company.
Surging demand from consumers for a wide range of products during the pandemic has driven up prices for finished goods as well as raw materials, supplies and equipment. Product shortages and bottlenecks in supply chains have added to the costs.
Prices for materials and components used in construction spiked 4% in May from April and were up over 17% from a year earlier, according to the Labor Department. Manufacturers paid 2% more last month for materials than they did in April and 21% more than in May 2020. Also in the mix: intense competition for workers that has some companies paying more to attract new hires and retain current staffers.
While inflation affects all companies, small businesses struggle more than their larger counterparts. Big corporations have greater negotiating power because they buy goods and services in bulk and have much larger revenue streams to absorb higher costs. These factors make it easier for big companies to avoid passing increases along to their customers.
Service providers are equally pinched by higher inflation. With more homeowners remodeling since the start of the pandemic, supplies of paint, lumber and other materials have fallen and their prices have soared, forcing general contractor Victoria Staten to change her pricing policies.
“We’ve gone from guaranteeing estimates for 30 days to just five days,” says Staten, owner of The Upside Chicago. Staten is also pricing labor and materials separately, rather than providing an all-inclusive estimate as she did pre-pandemic.
The scarcity of materials is also adding to Staten’s costs — it can take several days to find items like moldings that used to be found easily. She’s been absorbing the labor costs involved in these shopping trips but is considering adding staffers’ extra time to her invoices.
Some price increases may roll back, economist Ray Keating says.
“The best case scenario on the recent move up in inflation is that it is temporary, as the recovering economy struggles to get production, operations, supply chains and employees back to something close to normal,” says Keating, chief economist with the advocacy group Small Business & Entrepreneurship Council.
Costs that are most likely to come down are energy-related, as the price of gasoline and other fuels tends to fluctuate. And if supply chain bottlenecks ease, shippers are likely to lower their rates.
But, Keating says, “the second scenario is that inflation takes hold, and as the old saying goes, once the inflation genie is let out of the bottle, it’s not easy to get back in.”