Small Businesses Vulnerable to Inflation

Joe Greco, president of the graphics design firm Joseph Ferruzzi Associates Inc., poses in his New York office Tuesday, May 23, 2006. Greco, shown with a poster his firm produced for Nascar, is concerned about the rising costs of printing and shipping. (AP Photo/Mark Lennihan) (Mark Lennihan - AP)

NEW YORK -- These are uneasy times for many small business owners _ with the cost of almost everything they buy ratcheting higher, they're being forced to take the anxiety-provoking step of raising their own prices.

At Joseph Ferruzzi Associates Inc., a New York-based design and printing company, President Joe Greco has been contending with a series of price increases and surcharges for paper and delivery services. He can't absorb it all.

"The bills are going through the roof," Greco said. "Any out-of-pocket money has to be passed on."

So Greco has been alerting clients, who range from other small businesses to larger companies, that they'll need to pay more.

So far this year, inflation as measured by the government's consumer price index is rising at an annual rate of 5.1 percent, way above the 3.4 percent increase for all of 2005. What's known as core inflation, which excludes energy and food prices, is up at a rate of 3 percent, ahead of last year's 2.2 percent.

But while higher energy and raw materials costs and rising interest rates have been grabbing the headlines this year, owners say they're feeling the effect of inflation throughout their businesses.

"Our costs for everything have gone up _ the biggest issue is the cost of health care," said Brian Drum, CEO of Drum Associates, a New York-based executive recruiter.

"When health care is going up in the double digits for the last three or four or five years, that gets very hard to manage," he said. Like other employers, Drum has had to change health plans and the amount of coverage he provides, and ask employees to pay more for their health care.

"But we're still paying a significant increase," he said.

Drum said his company has raised some of its consulting rates because of inflation pressures.

Raising prices is a difficult process for many small businesses. Every increase potentially makes them less competitive, and raises the possibility that customers might go elsewhere.

Some "start to think you're gouging them. They start to look for other people" to do the job, Greco said.