Inflation hitting small businesses hard – report

By RNZ.co.nz

Small business sales have fallen to their lowest level since September last year, as consumers feel the rising cost of living.

23062016 Photo: RNZ / Rebekah Parsons-King. Busy streets in Wellington.

Inflation is continuing to hit small businesses. Photo: RNZ / Rebekah Parsons-King

The latest Xero small business index shows sales in July fell 1.5 percent year-on-year, down from 4.4 percent growth in June.

At the same time, inflationary pressures continued for small firms, as wage growth was above 6 percent – with construction and hospitality leading the growth.

Xero country manager Bridget Snelling said inflation also meant the fall in sales was much worse than it appeared.

“Inflation in Aotearoa has hit 7.3 percent. This suggests the volume of goods and services sold has actually been much lower and price increases are hiding this real drop in sales.

“We estimate the real sales drop for small businesses is closer to negative 8.8 percent year-on-year.”

Snelling said falling sales and rising wages created pressure for firms.

“For wage growth to be sustainable, we really need to see it matched by high sales.

“We want to be a high wage economy, absolutely, but this is only really going to last if sales can grow and we can match that high wage rate with a growth in sales.

“At the moment small businesses will really be feeling the pinch, still paying high wages but getting less money in the door.”

Snelling said the falling sales was a clear sign that small businesses needed support from people shopping locally.

Small business jobs also continued to grow, with 4.7 percent more jobs in small firms than there were a year ago.

It was the third successive month that jobs growth was above the long term average of 3 percent year-on-year.

“Job growth means more Kiwis are choosing to work in small businesses. We’re in the middle of a significant labour shortage and it’s encouraging to see small businesses are continuing to compete against larger corporations.”

Sometimes when a business is growing, it needs a little help.

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