As Gas Prices Surge, Businesses Feel Pinch

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May 25, 2004--Gas prices continue to climb and have many small businesses worrying, says a new survey by the National Federation of Independent Business (NFIB). Roughly 26% of the more than 4,600 business owners responding said energy costs were a "critical problem" for them.

Last week the average retail price for gasoline topped the $2 mark, according to the Energy Information Administration (EIA). This represented a nearly 52 cent increase over the same time last year and the highest price unadjusted for inflation since the EIA began tracking the data in 1990.

Energy costs were the fourth most important problem facing small-business owners, behind the cost of health insurance, liability insurance, and workers' compensation, according to the NFIB survey. In 2000, owners ranked energy costs tenth.

The jump in energy costs is creating inflationary pressure, as businesses have raised or are considering raising prices. With the economy showing renewed vitality, and job growth on the rise, this might be the time to do it.

"We are in a recovery," said Bruce Phillips, senior economist at the NFIB, "and some costs might be pushed forward to the consumer. We'll just have to wait to see if the consumer will accept that."

Phillips stressed that it is too soon to tell how great the effects the surge in prices will be, but that they will become more evident during the summer, the peak driving months. He added that, while businesses like transportation will clearly be hurt, any business in a highly competitive market will struggle if the prices remain high or increase.

"Things we might see are businesses combining trips," said Phillips, "or cutting them out entirely."

The issue has been a political hot-button in this election year. On May 18, a group of ten Democratic governors sent a letter to President Bush, urging him to take action to constrain gas prices.

"Small businesses and commercial drivers are struggling to keep up with the cost of diesel fuel," wrote the governors, "and the cumulative impact of these price increases has fueled inflationary growth and hurt our economy."

Matt Quinn

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.