Jul. 15—Although inflation slowed slightly in June, small business owners remain concerned about the economy for the 17th month in a row, according to a National Federation of Independent Business (NFIB) report.
While experts say there is no easy fix, Bucknell University economics professor Matías Vernengo, believes what really needs to be higher is employment compensation.
"There's not much that can be done (about inflation), in my view, other than to solve the problem that inflation causes — mostly, what workers lose with inflation is that their real wage goes down," Vernengo said.
Inflation was the biggest problem for 25 percent of small business owners in May, up two points from April. Concern about labor quality followed close behind at 24 percent, with 44 percent of owners reporting difficulty filling job openings.
The year-over-year U.S. inflation rate was 4.05 percent as of May 31, compared to 4.93 percent in April and 8.58 percent in May 2022. In June, the inflation rate was measured at 3.05 percent according to the Consumer Price Index.
Overall, since the beginning of President Joe Biden's administration, prices have gone up 18.3 percent.
Testifying before Congress recently, Federal Reserve Chairman Jerome Powell warned that America is a "long way" away from low inflation, and "higher" interest rates may be necessary.
"The best policy is to compensate workers for the effects of inflation," Vernengo said.
While Vernengo believes that price controls are an important tool for leaders, he noted that it's harder in America's free-market economy. In the short term, Vernengo doesn't see a particularly good solution to bringing down inflation. He also doesn't see inflation persisting.
Causes of inflation"I think one of the true stories is that inflation was caused by the excessive, large fiscal packages during the pandemic. The rescue funds," he said. Vernengo said there was also "greed-flation. Corporations increased their margins which helped fuel inflation. The rising price of energy played a role as well."
Penn State professor Steve Tracey, who specializes in supply chains, said inflation has affected small (and large) businesses through labor and product cost. "I'm pretty sure that labor inflation is now a higher cost than product inflation overall. But inflation is getting slightly better."
Meanwhile, Vernengo blames the rearrangement of the supply chains for the record inflation — something that started well before the COVID-19 pandemic.
"That had started even before the pandemic because of the geopolitical issues between the U.S. and China," Vernengo says. "Those were intensified, particularly because of the zero COVID policy in China. So when a port closes completely, we're now heavily dependent on these big ships with containers. Any snag in that 'just in time' sort of transmission of products leads to lots of problems, and we've had those — particularly in the microchip and car industries."