July inflation fell to 8.5%, CPI report shows, but small businesses continue to struggle

Pablo Soto long harbored a passion for the culinary arts, and it led he and his wife to open Don Pablo’s in uptown Chicago in February. The Chilean restaurant offers empanadas, corn pies and desserts.

But Soto said the eatery is now struggling to tackle high inflation. He has raised the price of menu items in the past several months, he said, but ingredients have increased in cost.

Soto said he also had to lay off a worker in May because he now has fewer customers, leaving him with three employees.

“I hate to raise my prices,” Soto said. “Raising the prices is something that’s going to hurt someone, even if it’s $1. When people have kids, when people have more than one mouth to feed, you don't want to be the one who actually makes things even worse for these people.”

Inflation in the U.S. fell slightly to 8.5% in July, down from a historical high of 9.1% in June. Although the drop brought hope that a price surge may have peaked, small businesses across the country have continued to struggle.

Don Pablo’s has raised item prices by 75 cents to $2, Soto said. For example, the first item on the menu, empanada clásica, increased from $6.95 to $8.95.

If the country were to enter a recession, this could impact Don Pablo’s negatively, as people may dine out less frequently. Soto thinks “that’s very frightening for a small-business owner,” but he said he’s preparing his restaurant for economic downturns.

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Small businesses could face more difficulties during a recession than larger enterprises because they typically have lower cash reserves, said Bert Bean, CEO of staffing company Insight Global.

But recessions could be an opportunity for small businesses to adjust strategies and acquire market shares, he said.

“When you’re smaller, you can be more nimble,” Bean said. “If you’re small enough, you may not contract as much because even if your market contracts, there’s still lots more in the market for you to go get.”

Bean said small businesses should be transparent with their customers and suppliers when raising prices, to help maintain a close relationship despite inflation.

They could also create and share growth plans with their employees to build better internal connections, he said, and they should try to avoid layoffs, to foster a healthier work culture.

Lola’s Fine Hot Sauce has also experienced cost increases, from wages to gas prices, CEO Taufeek Shah said. The Iowa-based small business sells home recipes of hot sauce to restaurants and retail stores.

Although the company has been able to absorb some cost increases, some are passed on to retailers, and eventually to consumers, Shah said. Lola’s has increased prices by 3% to 15%, depending on the product.

A possible recession has pushed the company to consider which products and geographies have better sales, Shah added, and Lola’s has recently expanded and hired more workers.

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Small businesses could apply for grants and loans from the government and the private sector. For example, the Small Business Administration could help small businesses receive loans, which could have lower down payments and more flexible overhead requirements.

The SBA also offers other programs, such as the Women-Owned Small Business Federal Contracting program and 8(a) Business Development program.

Although Don Pablo’s has been looking at these programs, Soto said he hasn't applied for any, because the business is too new to qualify, and the application process is time-consuming.

Lola’s hasn’t applied to any either, Shah said, because the company didn’t know any programs the business was qualified for.

“We’re still trying to navigate the challenges,” Shah said. “It’s tough to try to get a high-quality product manufactured and produced with a good cost just because inflation is pressuring everybody.”

This article originally appeared on USA TODAY: Inflation report: Rate fell to 8.5%, small businesses still struggle