Inflation remains a headache for small business owners

A shop holds a sidewalk sale on Feb. 10, 2023, in Providence, R.I. Inflation remains a top concern for small businesses, which reported lower optimism in February. (AP Photo/David Goldman, File)

NEW YORK (AP) — Inflation remains small businesses' chief worry, according to a new survey showing their optimism fell in February.

The National Federation of Independent Businesses' Optimism Index fell to 89.4 in February. It's been below the 50-year average of 98 for 26 straight months. Twenty-three percent of small business owners said inflation was their top problem, up three points from January, when labor quality was the chief concern.

Inflation remains elevated. Prices rose 0.4% from January to February, up from the previous month’s 0.3% pace, the Labor Department said last week. Compared with a year earlier, consumer prices rose 3.2% last month, slightly higher than in January.

Excluding food and energy prices, so-called “core” prices also climbed 0.4% from January to February. That's faster than what's needed to bring inflation down to the Fed’s 2% target. Core inflation is watched closely for a read on where inflation is likely headed.

As they grapple with inflation, small business owners are spending less. Fifty-four percent of owners reported capital outlays in the last six months, down five percentage points from January. Of those making expenditures, 35% reported spending on new equipment, 23% acquired vehicles, and 15% improved or expanded facilities.