A man checks the label on a vitamin can at a Costco wholesale store in Colchester, Vermont, on April 3, 2024.
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Small business confidence fell to its lowest level in 11 years in March as owners worried that inflation remained a serious problem.
Amid other data showing inflation receding, the National Federation of Independent Business reported Tuesday its investigation The index was 88.5, down nearly one percentage point from February and the lowest level since December 2012.
A quarter of respondents said rising costs were the biggest problem.
“Small business optimism has reached its lowest level since 2012 as owners continue to contend with numerous economic headwinds,” said NFIB Chief Economist Bill Dunkelberg. “Inflation once again reported as high on Main Street top business concerns, while the labor market has only moderately eased.”
A quarter of respondents cited inflation, specifically higher input and labor costs, as the most pressing issue. Based on seasonally adjusted data, a net 28% of respondents reported raising their average selling prices this month, and 33% planned further price increases.
A net 38% said they had increased their pay as part of rising costs, up 3 percentage points from February’s data and the lowest level since May 2021. The Labor Department reported Friday that average hourly earnings rose 0.3% in March, up 4.1% from a year ago.
Other indicators accompanying the survey show that inflation, while not eradicated, is at least receding.
The Commerce Department’s measure of personal consumption expenditures prices showed annual inflation was 2.5% in February. The Fed uses it as its main inflation gauge, excluding food and energy, to a 2.8% rate, which policymakers view as a better sign of longer-term trends.
The Consumer Price Index, a number of wider public concern, will be released on Wednesday, with headline growth expected at 3.4% and core growth at 3.7%. Fed policymakers are targeting an annual inflation rate of 2%.
Inflation expectations have been fairly stable in recent months. A survey from the New York Federal Reserve Bank on Monday showed that respondents in March expected interest rates to be 3% next year, unchanged from February. Three-year expectations rose slightly, but five-year expectations fell.
However, the survey did show that expectations for rent increases next year have risen sharply — up 8.7%, up 2.6 percentage points from February. Falling housing inflation is central to the Fed’s argument that inflation will continue to fall toward the central bank’s 2% target, allowing for a rate cut later this year.
Fed survey respondents also said they expect prices for most other major components to rise significantly. They expect natural gas prices to rise 4.5% next year and food prices to rise 5.1%, both 0.2 percentage points higher than in the February survey.
