Inflation, supply chain woes remain big worries for small businesses.

• Author: Knauss, Christina Lee

By Christina Lee Knauss

With inflation rising faster than it has since Ronald Reagan was president, small businesses are among those being hit hardest by rising prices.

Economists and business leaders from around the Carolinas say South Carolina's small businesses so far seem to be weathering the storm, but many factors, including a possible rise in the cost of leasing commercial space, could make the coming months more difficult.

The National Federation of Independent Businesses' Small Business Optimism Index decreased in January to 97.1, down 1.8 points from December, with 22% of business owners reporting inflation as their single most important problem. Supply-chain tie-ups and difficulty in hiring enough workers are two other concerns causing small business confidence to shrink.

"Small business owners have been managing incredibly well, but over the last six months we have seen a sharp drop in the number of small business owners optimistic about the future," said Mark Vitner, senior economist with Wells Fargo Economic in Charlotte. "It's mostly concerns about inflation that are driving that. While many businesses have been able to pass along higher costs to their customers, they realize they're not going to be able to do that indefinitely."

Vitner said one shock that might hit small businesses hard over the next year is related to the Consumer Price Index. Some leases for retail, office or other commercial space are indexed for inflation, tied to the 12-month cyclical change in the CPI, which is surging at record levels not seen in 40 years.

A Feb. 10 report from the U.S. Labor Department showed that the CPI rose 0.6% in January, driving the annual rise in inflation to 7.5%, the highest level since 1982.

With the rise in the CPI, Vitner said some small businesses whose leases come up for renewal might deal with an increase in their rent, one more added cost in an already difficult season.

In the Midlands, most brokers who deal with leasing for commercial properties do not tie their prices to the CPI, according to David Lockwood, executive vice president with Colliers South Carolina' Columbia office. Instead, they deal with leases tied to fixed increases ranging from 2.5% to 3% over the long term.

"Most of the tenants we deal with want to know exactly what their rents would be over a long period of time, so that's why these fixed increases have been the norm for a long time," Lockwood said. "What we are seeing, however, is that because...