After two years of the pandemic and lost business, dealing with inflation is yet another challenge for Dana Buchanan, co-owner of local restaurant business Primal Alchemy.
Over the past 20 years, Primal Alchemy has grown steadily in Long Beach, with its roots in a sustainable and seasonal menu, until March 2020, a day when essentially all business disappeared, Buchanan said.
“We lost everything,” Buchanan said.
While Primal Alchemy was able to creatively adapt and transform its business model during the pandemic restrictions, “every day is stressful,” she said. “It didn’t pay the bills.”
While city governments and other organizations initially stepped up to provide grants, eventually funding began to dry up and businesses were left in “no man’s land,” Buchanan said.
“It was really scary out there,” Buchanan said.
Primal Alchemy is now in “recovery mode” with the goal of reducing the debt it has incurred to stay in business during 2020 and 2021. Still, sharply rising food and labor costs add another hurdle to overcome, Buchanan said.
“Black Swan Event”
Inflation climbed to just over 9% through June of this year — the largest 12-month increase in consumer prices since 1980-1981, according to the Bureau of Labor Statistics.
Inflation has more than tripled in the past two years, said Laura Gonzalez, an associate professor of finance at Cal State University Long Beach.
While inflation eased to 7.1% through November 2022, easing some pressure, costs to business owners and consumers remain high.
While inflationary pressures have eased slightly for small business owners, it remains the top concern, according to the National Federation of Independent Business (NFIB) Small Business Economic Trends report released in November.
While there are many factors contributing to the current rate of inflation, the biggest ones include energy prices, supply chain disruptions and labor shortages, Gonzalez said.
As a result, food and energy prices rose the most. Food prices rose an average 10.6 percent, and energy prices rose 13.1 percent from last year, according to the Bureau of Labor Statistics.
“Clearly, COVID-19 is a black swan event that is disrupting the economy and is changing the world,” Gonzalez said.
Gonzalez said the pandemic has accelerated certain trends that are likely to continue to affect the economy — mostly in technology development and automation, especially in restaurants and supermarkets.
Inflation in the U.S. is high, but not record-breaking. In 1980, the inflation rate reached over 14%. However, before the 2008 crisis, the housing market collapsed, unemployment was high and inflation was very low, pointing to a lack of economic growth, Gonzalez said.
Due to the 2008 recession, the economy shifted from inflation-free growth to roughly 2% annual growth to support a growing economy, Gonzalez said.
“When we say these differences are large, we mean American standards,” said Gonzalez, who is from Spain. “Here we are very concerned when our unemployment rate goes from 5% to 10%, but in Spain, for example, it is 10% and that’s what we have in times of economic prosperity.”
Now, the Fed aims to curb inflation and raised interest rates for the seventh time this year in mid-December.
For Long Beach resident, realtor and driving instructor Gloria Bradley, business has been hit hard between the pandemic and current inflation rates.
Gas prices have been particularly challenging for her two companies, Bradley said, and I’m relieved to see prices finally start to come down.
“When price increases impact your business and your lifestyle, you really need to reassess,” Bradley said. “If I’m going to show one property in (Corona) then I need to make sure to show five or six properties and hopefully (my) clients will find something.”
Combined with rising interest rates due to inflation levels, Bradley not only couldn’t help some of her clients keep buying, but left her without income.
“As a real estate agent, I can go months without any income. I only get paid when I help clients buy and sell,” Bradley said. “I don’t think a lot of people are paying attention to that, especially when you look at independent workers.”
With savings, Bradley has been able to weather the pandemic and current inflation rates, she said.
During the months when he wasn’t fully working, Bradley turned his energies into entrepreneurship, launching his own travel agency, an endeavor that is now “thriving”, as well as an independent driving school business.
“I’m always hopeful, and I always try not to focus on the negatives,” Bradley said. “Yes, some things are high and of course some things need to come down, but we need to make sure we live within our means.”
A balancing act for the Fed and business owners
For now, Gonzalez said, the Fed’s goal is to curb inflation and bring it down to around 2% without increasing unemployment.
“The biggest concern is that unemployment will start to rise before inflation gets under control,” Gonzalez said. “When that happens, the Fed will be in a very difficult position.”
Gonzalez said that while higher interest rates are needed to control inflation, they must fall in order to create jobs.
“They need to choose which problem to tackle first,” Gonzalez said. “Often what they do is try to control inflation first, which means unemployment may not be immediately helped.”
With high interest rates, it is more expensive for businesses to borrow, which means expansion and increased production are less likely, leading to a hiring freeze and possible job losses, Gonzalez said.
Gonzalez is urging local business owners and consumers to hold off on major purchases as long as possible, she said, with interest rates and inflation expected to begin to decline within a year.
“Barring unforeseen circumstances, by the end of 2023 we’ll hopefully be in much better shape,” Gonzalez said.
For many businesses, such as Primal Alchemy, Buchanan said the increased costs mean higher prices for services.
“Right now, people are getting more and more shocked that people weren’t used to paying these prices for these types of events before the pandemic,” Buchanan said.
However, Buchanan said people are making up for lost time and scheduling events over the past two years, which has kept Primal Alchemy a bit busier overall than in 2019.
Additionally, “we’re finding that a lot of restaurant companies aren’t coming through, and we’re getting business that may have gone to some of our competitors,” Buchanan said.
Navigating the company’s pricing structure to remain profitable and pay down debt while maintaining convenience for customers and not sacrificing quality of food or service — while ensuring employees execute on activities — has been difficult, but it has been a successful year nonetheless, she said. Say.
Despite the recent challenges, Buchanan is optimistic for 2023 because a considerable amount of business has already been booked, she said.
“It’s a really big dance to get what customers need at a budget they can afford and make sure we’re giving them a quality product that we’ve known for 20 years,” Buchanan said.