USAToday:
Cornered by higher energy costs and other expenses, more small businesses are planning price increases, threatening to fuel inflation as the Federal Reserve considers its next interest rate move. Small companies play an outsized inflationary role because they cater more to consumers than do big corporations, says Mark Zandi, chief economist at Moody’s Economy.com. ‘Consumers are feeling it more directly,’ he says.
Big companies are more likely to sell to other businesses, which may be able to absorb a price increase. For example, if IBM boosts its consulting fees to General Electric, that increase may never trickle down to the consumer level, Zandi says.
RISING PRICES: Industries pass along rising rail costs
Companies of all sizes resist price increases because they fear losing customers to competitors. Yet the nation’s more than 5 million small businesses have even less pricing flexibility because they too often are low-volume ventures with tiny profit margins.
In a recent survey, 30% of small companies said they planned to raise prices in the next 3 months, the National Federation of Independent Business said. The May survey of 440 firms was the 2nd-consecutive month of planned increases and one of the highest percentages in the trade group’s last 5 years of monthly surveys. ‘Firms clearly have pricing power,’ NFIB said.
Pet shop owner Ruth Hanessian (photo) has grown accustomed to paying fuel surcharges tacked on to invoices by suppliers of pet food and pet-care books. She responded by boosting prices on a few items at her Animal Exchange store in Rockville, Md. But now Hanessian is planning an across-the-board price increase of about 10% - the 1st time she’s done so - because delivery surcharges and other price increases have become so commonplace. Last month, a supplier gave her a bill carrying price increases for about a quarter of the 27 items listed. She thinks manufacturers are passing on higher energy-related manufacturing costs. ‘It’s all oil,’ she says.
And her monthly electric bill is rising 53% from a year ago just as summertime weather forces her to rely more on air conditioning. She sells birds, rabbits and other live animals, so she can’t raise the temperature in her store overnight to save money. ‘Some businesses can turn it on and off,’ she says. ‘I can’t.’ Read about the cost of oil.
Subscribe 
