After two years of navigating the pandemic and loss of business, coping with inflation has been yet another challenge for Dana Buchanan, co-owner of local catering business Primal Alchemy.
For the past 20 years, Primal Alchemy grew steadily in Long Beach, with its roots in sustainable and seasonal menus, until March 2020, when essentially all business was gone in one day, Buchanan said.
“We lost everything,” Buchanan said.
Although Primal Alchemy was able to creatively pivot and shift its business model amid pandemic restrictions, “Every day was stressful,” she said. “It wasn’t paying the bills.”
While the city and other organizations initially stepped up to provide grants, eventually, funds began to dry up, and the business was left in “no man’s land,” Buchanan said.
“It really got scary for quite a while there,” Buchanan said.
Now, Primal Alchemy is “in recovery mode,” with the goal of reducing debt that was incurred to stay in business throughout 2020 and 2021. A sharp rise in food and labor costs, though, has added yet another obstacle to navigate through, Buchanan said.
‘A black swan event’
By June of this year, inflation climbed to just over 9%—the largest 12-month consumer price index increase since 1980 to 1981, according to the US Bureau of Labor Statistics.
In the past two years, inflation has more than tripled, said Laura Gonzalez, associate professor of finance at Cal State Long Beach.
While by November 2022, inflation lowered to 7.1%, offering some relief, costs have remained high for business owners and consumers alike.
According to a National Federation of Independent Businesses’ (NFIB) Small Business Economic Trends report conducted in November, while inflation pressures have eased slightly for small business owners, it remains a top concern.
Although there are numerous elements contributing to current inflation rates, the largest factors include energy prices, the disruption of supply chains and labor shortages, Gonzalez said.
As a result, food and energy prices have seen the sharpest increases. According to the US Bureau of Labor Statistics, food prices have gone up an average of 10.6%, and energy has risen 13.1% over the last year.
“Clearly, COVID was a black swan event that disrupted the economy and is changing the world,” Gonzalez said.
The pandemic has accelerated certain trends that could continue to impact the economy—mainly when it comes to technology development and automation, particularly in restaurants and supermarkets, Gonzalez said.
Inflation rates, though, while high, are not record-breaking in the United States. In 1980, inflation reached over 14%. However, prior to the 2008 crisis, where there was a collapse in real estate and significant unemployment, inflation was markedly low, signaling a lack of economic growth, Gonzalez said.
As a result of the 2008 recession, the economy shifted from no inflation growth to growth of around 2% per year, to support a growing economy, said Gonzalez.
“When we say these are big variations, we are talking about US standards,” noted Gonzalez, who is originally from Spain. “Here, when we have a case of unemployment from 5 to 10%, we are very concerned, but 10% in Spain, for example, that’s what we have at a time of economic boom.”
Now, the Federal Reserve is aiming to subdue inflation, and in mid-December, interest rates were raised for the seventh time this year.
For Long Beach resident, real estate agent and driving instructor Gloria Bradley, business has been greatly affected between the pandemic and current inflation rates.
Gas prices have been particularly challenging for both her businesses, and it has been a relief to see prices finally begin to decrease, Bradley said.
“When you have higher prices that are affecting your business and your lifestyle, then you really have to kind of reevaluate,” Bradley said. “If I’m going (to Corona) to show a property, then I need to make sure I’m showing five or six properties with the hope that (my) client finds something.”
Combined with the rise in interest rates due to inflation levels, not only was Bradley unable to help some of her clients move forward with a purchase, but it left her without income.
“As a Realtor, I can go months without getting any income at all. I only get paid when I help a client buy or sell,” Bradley said. “I think that’s something a lot of people don’t look at, especially when you look at workers who are independent.”
Due to savings, Bradley was able to navigate through the pandemic and current inflation rates, she said.
For the several months that she was unable to work entirely, Bradley channeled her energy toward entrepreneurship, forming her own travel agency, an endeavor that is now “booming,” as well as an independent driving school business.
“I’m always hopeful, and I always try to not focus on the negative,” Bradley said. “Yes, some things are high, some things need to come down, of course, but we need to make sure we’re living within our means.”
A balancing act for the Fed—and business owners
Right now, the Fed’s goal is to tame inflation, bringing it down to around 2% without increasing unemployment, Gonzalez said.
“The biggest fear is that unemployment will start increasing before inflation is under control,” Gonzalez said. “And when that happens, the Federal Reserve will be in a very difficult situation.”
While controlling inflation requires increasing interest rates, in order to create employment, interest rates must decrease, Gonzalez said.
“They need to choose which problem to solve first,” Gonzalez said. “Normally what they do is to try to control inflation first, which means that unemployment may not receive immediate help.”
With interest rates high, it is more expensive for businesses to borrow, meaning there is less possibility for expansion and increasing production, leading to hiring freezes and possible job loss, Gonzalez said.
Gonzalez urged local business owners and consumers to hold off on large purchases, if possible, with the expectation that within a year, interest rates and inflation will start to decrease, she said.
“Unless something happens that is unexpected, we are expected to be in much better shape by the end of 2023,” Gonzalez said.
For many businesses such as Primal Alchemy, an increase in costs has meant raising prices for services, Buchanan said.
“Now, people are getting sticker shock, people are not used to paying those prices for those types of events prior to the pandemic,” Buchanan said.
However, people are making up for lost time and scheduling events they couldn’t have for the past two years, making it overall a little busier for Primal Alchemy than in 2019, Buchanan said.
Additionally, “we’re finding out a lot of catering companies that didn’t make it through, and we’re getting business that might have gone to some of our competitors,” Buchanan said.
Navigating the company’s pricing structure to stay profitable and pay back debt, while remaining accessible to clients and not sacrificing food or service quality—all while securing staff to execute events—has been difficult, but despite that, it has been a successful year, she said.
Despite the recent challenges, Buchanan is optimistic about 2023, with a fair amount of business already booked, she said.
“It’s been a very big dance on getting what our clients need within a budget they can absorb, and making sure we give them the quality product that we’re known for 20 years,” Buchanan said.