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Wall Street thinks inflation has peaked. Main Street expects more pain

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Shoppers are seen inside a Kroger supermarket on October 14, 2022 in Atlanta, Georgia.

Elie Nouvelage | AFP | Getty Images

More and more stock market participants and among the ranks of professional economists have rallied around the view that inflation has either peaked or is already in decline, but Main Street small business owners are not skeptical. Expect a reprieve from high prices anytime soon, according to a new CNBC poll.

Overwhelming Majority (78%) of US Entrepreneurs Say They Expect Inflation to Continue to Rise, CNBC Quarterly Survey Shows | SurveyMonkey Small Business Survey. That’s effectively unchanged from last quarter, when 77% said they expected inflation to continue to rise.

Main Street’s belief that inflation has yet to peak comes amid recent conflicting economic data points and consumer sentiment.

Wholesale prices reported on Friday rose more than expected in November as food prices continued to climb. However, the producer price index, a measure of what companies get for their products in development, rose 7.4% from a year ago, the slowest pace in 12 months since May 2021. Meanwhile, the University of Michigan’s consumer confidence index rose more than expected amid falling inflation expectations, albeit still high relative to recent history.

Megan Greene, chief economist at Kroll Global, said on CNBC’s “Squawk Box” on Friday that she thinks “peak inflation is probably behind us.”

But inflation concerns are leading to the most cautious holiday season for shoppers since 2013, according to the CNBC All-America Economics Survey, with 41% of consumers saying they plan to spend less this year than last. last year. Of this group, a third said they would spend less because of inflation.

Walmart CEO Doug McMillon said on Tuesday that the American shopper still feels “stressed” by inflation, even though that effect is not felt evenly across all categories.

Cheaper gasoline prices could help ease those worries, as the price per gallon is now expected to fall below $3 for more Americans by the end of the year. According to AAA, the national average for a gallon of unleaded gasoline was $3.329 on Thursday, well below the record price of $5.01 a gallon on June 14 and below the price seen before the invasion of Ukraine. by Russia.

Regardless of economic tailwinds, inflation remains a major concern for small business owners.

More small business owners (45%) now say inflation is the biggest risk to their business than tracked in any of the previous recent quarterly surveys. The CNBC|SurveyMonkey Small Business Survey for Q4 2022 was conducted November 9-11. 16 out of nearly 2,600 small business owners.

Overall, almost all small business owners (92%) are worried about inflation, according to the survey.

“I think a lot of what’s generated sentiment among small business owners recently, but especially since the onset of Covid, is pure risk management,” said Laura Wronski, senior science research officer. at Momentive, which is conducting the investigation for CNBC. “The safe bet over the past year was that inflation would continue to worsen over time because if small business owners were prepared for the worst, they would be better able to manage business challenges.”

Wronski said that given the economic environment seen so far this year, “Main Street is probably a bit burnt from their experience.”

Small business owners remain confident that a recession will occur, although the latest survey data shows a shift in expectations of an economic slowdown into next year. Previously, a large proportion of business owners told the survey that they believed the economy was already in a recession.

Risk management, says Wronski, is “the reason why we see small business owners continuing to point to inflation as their primary concern and expecting prices to continue to rise, even as economic indicators begin to change”.

While small business owners in general are concerned about inflation, there is some partisanship when it comes to their concerns about the economy. Fifty-one percent of Republican small business owners say inflation is the biggest risk to their business, compared to 35 percent of small business owners who are Democrats.

This political divide is also present in forecasts for the peak of inflation, with only 11% of Republican small business owners saying inflation has reached that point, compared to 41% of small business owners who identify as democrats. Those numbers are largely unchanged from the previous quarter, with slightly more independents and Democrats saying inflation peaked this quarter, matching the slightly more optimistic outlook for small business owners who are s identify as Democrats.

The shift in sentiment among Democrats responding to the survey helped President Biden’s approval rating on Main Street rise for the first time during his presidency, although it fell from an all-time high. After hitting an approval rating among small business owners of 31% during the third quarter of 2022, when inflation hit its all-time high, President Biden’s approval rating rose to 34. % in the fourth quarter, the first time in the eight quarters of his presidency, there was no rise in the quarterly survey, and breaking a streak of six consecutive quarterly declines.

But key to Biden’s stance on Main Street, as well as general sentiment among small business owners, will be continued declines in inflation, or at least clearer signs that it’s headed in the right direction.

That’s something Federal Reserve Chairman Jerome Powell has indicated, saying on Nov. 30 during a speech at the Brookings Institution that “it will take a lot more evidence to confirm that inflation is down”.

“Inflation by any measure remains far too high,” Powell said. “Despite tighter policy and slower growth over the past year, we have not seen clear progress on slowing inflation. … The truth is that the way forward for inflation remains very uncertain,” Powell said.

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