This week, we learned that in June inflation stood at 9.1%, the highest in 40 years. Prices are rising, thanks to a variety of factors: an incredibly strong labor market, supply chain bottlenecks that led to shortages, soaring fuel prices, and pent-up demand for services – including travel (hotels, airfares, restaurants, attractions) and consumer goods that were unavailable during the pandemic.
Combine those factors with excess saving (imposed by pandemic rules that curtailed economic activity), the availability of stimulus money, and low-interest rates, and you have a recipe for today’s high inflation.
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“We must be focused on reducing inflation because, despite a lot of talk about recession lately, the evidence from the labor market indicates the economy is on track, while inflation continues to be far too high,” said Christopher J. Waller, a member of the Board of Governors of the Federal Reserve, at a speech in Idaho this week.
“High inflation is the biggest challenge to sustaining our employment goal, and the greatest burden for individuals and families, especially lower- and moderate-income households that dedicate a larger share of their spending to necessities…
The spending and pricing decisions people and businesses make every day depend on their expectations of future inflation, which in turn depend on whether they believe the Fed is sufficiently committed to its inflation target.”
Inflation continues to be a top problem for small businesses, according to the June 2022 NFIB Small Business Optimism Index. More than one-third (34%) of small business owners report that inflation is their single most important problem in operating their business, an increase of six points from May and the highest level since quarter four in 1980.
The NFIB Small Business Optimism Index dropped 3.6 points in June to 89.5, marking the sixth consecutive month below the 48-year average of 98.
The percentage of small business owners expecting better business conditions over the next six months decreased seven points to a net negative 61%, the lowest level recorded in the 48-year survey.
Expectations for better conditions have worsened every month this year, according to this widely reported index. Key findings include
The net percent of owners who expect real sales to be higher decreased 13 points from May 2022 to a net negative 28%, a severe decline. Source: Forbes