Inflation concerns remain, and small and medium-sized enterprises’ optimism falls to 11-year low

Confidence among small businesses hit an 11-year low in March, with business owners concerned that inflation remains a major problem.

The National Federation of Independent Business reported Tuesday that its survey came in at 88.5, down nearly 1 point from February and the lowest since December 2012, as other data points point to a retreat in inflation. .

A quarter of all respondents said rising costs were their biggest problem.

“Small business optimism is at its lowest level since 2012 as business owners continue to grapple with a number of economic headwinds,” said Bill Dunkelberg, chief economist at NFIB. “Inflation is again being reported on Main Street as the biggest problem for businesses, and the labor market has only eased slightly.”

A quarter of all respondents cited inflation, particularly rising input and labor costs, as the most pressing issue. Based on seasonally adjusted data, a net 28% reported an increase in their average selling price for the month, and 33% said they were planning additional price increases.

As part of these cost increases, a net 38% said they had increased compensation, an increase of 3 points from February’s reading, the lowest since May 2021. The Labor Department on Friday reported average hourly wages rose 0.3% and 4.1% in March. From 1 year ago.

The survey also includes other indicators that while inflation has not been eradicated, it is at least in retreat.

The annual inflation rate was 2.5% in February, according to the Commerce Department’s measure of personal consumption expenditure prices. The measure, which the Fed uses as its main inflation indicator, stood at 2.8% excluding food and energy, which policymakers like as a better sign of long-term trends.

The consumer price index, which is closely watched by the broader public, will be released on Wednesday, with the composite index expected to be 3.4% and the core index 3.7%. Fed policymakers are targeting annual inflation of 2%.

Inflation expectations have remained fairly stable in recent months. A survey conducted by the New York Fed on Monday showed that respondents in March expected interest rates to remain at 3% next year, unchanged from February. The three-year outlook rose slightly, but the five-year outlook fell.

However, the survey shows that expectations for rent increases have risen significantly, increasing by 8.7% over the coming year and 2.6 percentage points since February. Lower haven inflation is at the heart of the Fed’s theory that inflation will continue to fall toward the central bank’s 2% target, allowing it to cut interest rates this year.

Fed survey respondents also said they expected prices to rise significantly for most other major components. They expect gasoline prices to rise 4.5% and food prices to rise 5.1% next year, both up 0.2 points from the February survey.