Statement of the Hon. Nydia Velázquez on Prices on the Rise: Examining the Effects of Inflation on Small Businesses
Washington, June 7, 2023
The effect of inflation on small businesses is no secret – it can dig into margins and contribute to tighter monetary conditions, limiting access to capital and the ability to grow and expand.
However, inflation is not a single-threaded issue; it’s a complex dynamic of global events. The COVID-19 pandemic, supply chain disruptions, labor shortages, monopolistic price-gouging, and geopolitical tensions have created a perfect storm of inflationary pressures that are impacting Main Street.
It is a disservice to our nation’s small firms to oversimplify this issue as a mere consequence of federal spending.
We stand in the middle of the global pack in terms of inflation rates, yet our recovery from the pandemic has been unparalleled. Fiscal stimulus, like the CARES Act and the American Rescue plan, turned the deepest post-WWII recession into the shortest.
Projections from Moody’s Analytics predict that without this relief, U.S. GDP would have fallen three times its actual rate, and we would have experienced a double-dip recession in early 2021.
Today, we now enjoy unemployment rates at 50-year lows, with GDP recovering to its pre-recession trend – something not seen in decades.
According to the Federal Reserve, the entire $5 trillion worth of fiscal stimulus deployed in response to the pandemic contributed to only about a third of total inflation. Therefore, we must consider the many other drivers of inflation to create a comprehensive policy response, not mere political posturing.
First, our country has a history of outsourcing and supply chain consolidation. While this made a few shareholders a lot of money in good times, it made us increasingly vulnerable to disruptions.
Additionally, the increasing concentration of industry over the past 30 years enabled corporate monopolies to exploit their market power and dramatically increase margins.
Democrats focused on enhancing our domestic productive capacity by passing the Infrastructure Investment and Jobs Act to revitalize and bolster our supply chains. We passed the CHIPS and Science Act to invest in innovation and create resilient, domestic supply chains.
Finally, the Inflation Reduction Act was enacted to lower health care and energy costs for small businesses while making the U.S. a world leader in clean energy and reducing our dependence on volatile global energy markets.
Clearly there is more to be done, but we are seeing encouraging signs of lower inflation – nearly cut in half from last summer’s peak.
While the only Republican plan to fight inflation is draconian cuts to our social safety net, Democrats have recognized the need to invest in the future to bring long-term price stability to our small businesses.