Waning consumer prices increase inflationary pressure on small businesses.

Consumer prices cooled in March, but the heat remains intense among businesses due to higher prices and economic uncertainty.

According to the Labor Statistics Bureau Office, the March consumer price index rose by 5 percent compared to a year ago. The figure was even less than the 5.2 percent forecast in a survey of Dow Jones economists and marks the smallest annual increase in consumer prices since May 2021. This latest data also shows an overall increase of 0.1 percent month over month. The slowdown continued from February’s 0.4 percent increase.

Reduced demand for food and energy has contributed to the recent slowdown in prices. The food index slowed from 9.5 percent annual growth in February to 8.5 percent in March. The energy index actually fell by 6.4 percent over the year, although according to KPMG economist Jelena Maleyev, the Russian invasion of Ukraine played a major role in last year’s energy indicators. Meanwhile, the core CPI, which strips out food and gas prices, rose 0.4 percent in the month, up from 0.5 percent in February, and 5.6 percent for the year. “Progress is a good sign, but it’s gradual,” says Michael Pugliese, senior economist at Wells Fargo. 

“Better flat inflation than spiralling up if you take the CPI, for example, it’s still high.” The defense index contributed the most to that increase, but it’s still slowing down, says Pugliese. Indices such as vehicle insurance, airline prices, home furnishings and features, as well as new vehicles, increased, according to the report.

Source: U.S. Bureau of Labor Statistics

Inflation remains the biggest concern for small businesses, although there are signs that it may be slowing somewhat. A new report from the National Federation of Independent Business found that 24 percent of small business owners said inflation is their biggest concern, down four points from last month. In addition, the net percentage of owners raising average sales prices hit its lowest point since April 2021 at 37 percent. Economists predict the Federal Reserve will raise interest rates again in May, but the report overall shows some movement in the right direction.
“It’s not the burning inflation of last year, but it still means we’re still above the Fed’s target,” says Maleyev. “It still means there’s still work to be done.”

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