SMEs make ‘clear move’ towards higher prices for consumers

Consumers can expect to pay more at the cash register with a “clear move” towards higher pricing now evident, driven mainly by mid to large SMEs and those based outside Dublin, according to a report carried out by Behaviours and Attitudes.

The SME Confidence Index was carried out on behalf of peer-to-peer digital lending platform Linked Finance. It scored confidence at 65.6 out of 100 in the second quarter, surging from a level of 48.7 a year ago, and above the pre-pandemic level of 65.2 at the end of 2019.

However, the report noted there were “signs of growing price inflation” with 23 per cent of companies expecting to charge higher prices in future, up from 6 per cent a year ago.

Inflationary pressures were particularly notable in larger SMEs where 44 per cent said they expect their prices to increase, as well as businesses in the retail and wholesale sector where 57 per cent said they expect to increase prices.

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The report also said businesses based outside Dublin are more likely to be charging higher prices.

The consumer price index from the Central Statistics Office showed inflation up 2.2 per cent year on year in July versus a 0.4 per cent decline the same time a year ago.

Linked Finance chief executive Niall O’Grady said the inflationary trend is “another sign of the economy heating up”, but insisted that “now more than ever businesses need to be careful to maintain competitiveness, particularly where reliant on export markets”.

Employment outlook

The report also noted that “a movement toward stable employment is now evident, which has implications for reducing unemployment levels”. The employment outlook is more positive among larger SMEs.

The optimism among companies has translated into improved profitability, with 65 per cent reporting profits the same or better than a year ago, compared to 30 per cent in the second quarter of 2020.

Job creation expectations have also moved into net positive territory, improving from last year when 33 per cent of companies expected to cut jobs (compared to 13 per cent this year) and just 3 per cent expected to increase headcounts. This year, 14 per cent of businesses expect to increase their staff.

Despite the pain experienced through the pandemic, two-thirds of businesses (66 per cent) said they were satisfied with the State’s efforts to help small businesses cope with the impact of Covid-19.

Just over a quarter of companies said they were very satisfied with the State’s support and only 12 per cent indicated any dissatisfaction.

Micro-enterprises

The picture was bleaker for micro-enterprises (those with three or less employees) where 45 per cent experienced lower trading performance than a year ago, albeit that was down significantly from the 73 per cent in that position a year ago.

Firms focused on the indigenous economy are recovering more slowly compared to those with exports, “possibly reflecting the relatively slower opening-up of the Irish economy relative to our major trading partners”, the report said.

Mr O’Grady said it was “very encouraging” that Irish SMEs are recovering from the huge challenges they have faced through the pandemic.

“Not only has business optimism rebounded to pre-pandemic levels, but the future outlook is for this trend to strengthen,” he said.

“We are, however, still seeing pockets of the economy that are slower to rebound, and it’s clear that the pace of recovery is lagging for domestic market-focused micro-businesses.

“Businesses are giving the Government a thumbs-up for the Covid supports received, even if it’s clear that sectors like travel, hospitality and live entertainment still bear a heavy burden due to uncertainty regarding their markets.”