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After two years of navigating a pandemic and business losses, dealing with inflation has become a new challenge for Dana Buchanan, co-owner of local catering business Primal Alchemy.
Over the past 20 years, Primal Alchemy has grown steadily in Long Beach, with its roots in sustainable seasonal menus, but in March 2020, virtually all business was gone in a day, Buchanan said. say.
“We lost everything,” said Buchanan.
Primal Alchemy was able to creatively reorient and shift its business model amidst the restrictions imposed by the pandemic, but “every day was stressful,” she says. “It didn’t pay the bill.”
The city and other organizations initially stepped in to provide subsidies, but eventually the funds began to dry up and the business was left in “no man’s land,” Buchanan said.
Buchanan said, “It was really scary for a while.
Primal Alchemy is currently in “recovery mode” with the goal of reducing the debt incurred to keep the business running through 2020-2021. But the steep rise in food and labor costs added yet another obstacle to overcome. Said.
“Black Swan Event”
By June of this year, inflation had climbed to just over 9%, according to the US Bureau of Labor Statistics. This is the largest increase in the consumer price index in the 12 months from 1980 to 1981.
Inflation has more than tripled in the past two years, says Laura Gonzalez, associate professor of finance at California State University, Long Beach.
Inflation has eased somewhat, falling to 7.1% by November 2022, but costs to business owners and consumers remain high.
According to the National Federation of Independent Businesses (NFIB) Small Business Economic Trends report conducted in November, inflationary pressures have eased slightly but remain the top concern for small business owners.
There are many factors contributing to the current rate of inflation, but the biggest ones include energy prices, supply chain disruptions and labor shortages, Gonzalez said.
As a result, food and energy prices rose sharply. Food prices rose an average of 10.6%, and energy rose 13.1% last year, according to the US Bureau of Labor Statistics.
“Obviously, COVID was a black swan event that was disrupting the economy and changing the world,” Gonzalez said.
The pandemic has accelerated certain trends that may continue to affect the economy, mainly regarding technological development and automation in restaurants and supermarkets, Gonzalez said.
Inflation, while high, is not record-breaking in the United States. In 1980 inflation exceeded his 14%. But before the 2008 financial crisis, there was a collapse in real estate, high unemployment and markedly low inflation, which indicated a lack of economic growth, Gonzalez said.
As a result of the 2008 recession, Gonzalez said the economy shifted from non-inflationary growth to about 2% annual growth to support a growing economy.
“When we say these are big differences, we’re talking about US standards,” said Gonzalez, who is from Spain. “Here he is very worried when the unemployment rate is 5-10%, but in Spain, for example, during the boom period he has 10% unemployment.”
Now, the Federal Reserve is looking to keep inflation in check, and in mid-December raised interest rates for the seventh time this year.
For Gloria Bradley, a Long Beach real estate agent and driving instructor, her business has been hit hard between the pandemic and the current rate of inflation.
Gasoline prices have been particularly tough for her business, and it was a relief to see prices finally starting to come down, Bradley said.
“If there’s a price increase that impacts your business or your lifestyle, you really need to reassess,” Bradley says. We need to show them five or six properties in the hope that they will find something.”
Coupled with rising interest rates due to inflation levels, Bradley was not only unable to help some of his customers move forward with their purchases, but he was left with no income.
“As a real estate agent, you can spend months without any income, and only get paid when you help clients buy and sell,” says Bradley. “I think that’s what a lot of people don’t see, especially when you look at independent workers.”
The savings helped Bradley weather the pandemic and current inflation, she said.
During the months when he was unable to work fully, Bradley devoted his energy to entrepreneurship, founding his own travel agency, which is now “booming”, and also ran an independent driving school business.
“I’m always hopeful and try not to look at the negatives,” Bradley said. Of course, some are expensive and some have to be lowered, but you have to make sure you are living within your income. “
A Balancing Act for the Federal Reserve and Business Owners
For now, the Fed’s goal is to keep inflation under control and get it to about 2% without increasing unemployment, Mr. Gonzalez said.
“The biggest concern is that unemployment will start rising before inflation is brought under control,” Gonzalez said. “If that happens, the Federal Reserve will be in a very difficult situation.”
Interest rates must be raised to keep inflation under control, but they must be lowered to create jobs, Gonzalez said.
“You have to choose which problem to solve first,” says Gonzalez. “They usually try to keep inflation down first, which means the unemployed may not be helping out any time soon.”
High interest rates make it more expensive for businesses to borrow. That means less potential for expansion and increased production, leading to job freezes and potential unemployment, Gonzalez said.
Gonzalez has urged local business owners and consumers to refrain from making large purchases if possible in the hope that interest rates and inflation will begin to fall within a year, she said. .
“By the end of 2023, barring unforeseen circumstances, we expect to be in much better shape,” Gonzalez said.
Buchanan said that for many companies like Primal Alchemy, higher costs mean higher prices for their services.
“People are in shock right now. Before the pandemic, they weren’t used to paying that kind of price for these kinds of events,” Buchanan said.
But Primal Alchemy overall is a little busier than it was in 2019, Buchanan said, as people make up for lost time and plan events that haven’t happened in the last two years. .
Plus, “we’re finding a lot of catering companies that didn’t work out, and we’re getting business that could have gone to some of our competitors,” Buchanan said.
Difficulty navigating a company’s pricing structure to maintain profitability and repay debt while ensuring staff to run the event is accessible to customers, without sacrificing quality of food and service But nevertheless, it was a successful year.
Despite recent challenges, Buchanan remains optimistic about 2023, with a significant amount of business already booked.
“Getting our clients what they need within a budget they can absorb, and ensuring we deliver the high quality products that we have been known for over 20 years, has been a huge challenge. says Buchanan.
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