Dilemma for Small Businesses: Raise Prices or Absorb Inflation?

Higher energy prices and borrowing costs make it more expensive than last year for Bill Savickas to operate his wholesale produce business -- especially since it's hard to pass the increases on to his customers.

"No one wants to be the first in the industry to raise rates and then look like the bad guy," says Savickas, the owner of Tampa, Florida-based Yankee Produce Co.

While inflation overall has been tame the past few years, economists including those on the Federal Reserve Board forecast an acceleration in price increases this year. That's going to put more pressure on small businesses that don't have the big revenue cushions that larger companies do to help absorb costs. Smaller businesses also don't have the negotiating power to get better prices from vendors. And many have already been contending with rising costs, particularly for labor and energy.

Yankee Produce uses big trucks to haul and deliver the fruit, vegetables and other food it sells. But nationwide diesel prices are up an average of nearly 30 cents a gallon from a year ago, which makes filling up an average tractor-trailer nearly $100 more expensive than it was in early 2017. The difference comes out of profit.

"I'm taking home significantly less money on the same amount of sales as I had a year ago," Savickas says.

He's also facing higher borrowing costs. The interest on his business line of credit was in the 6 percent range when the Fed was keeping rates stable, but now it's between 7 percent and 7.5 percent. And after an increase last week, many economists expect the Fed to raise interest rates two more times this year.

"It's changing by thousands," Savickas says of his interest expenses. "That only comes from one place, my paycheck."

Wholesale prices, those paid by companies, were up 2.8 percent in February...

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