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Inflation Is Eating Into Your Business: Here’s Where the Costs Are Rising
In the past six years since the COVID-19 pandemic, there has been significant global economic uncertainty. Specifically, inflation has seen a major rise. This stagnated period initiated global supply chain disruptions and aggressive monetary tightening which created a challenging environment for businesses.
How does inflation work?
Inflation is “the persistent rise in the average price of goods and services over time. As general prices increase, each unit of currency buys less, which reduces your purchasing power and increases the cost of living.” According to Statistics Canada, prices have risen roughly 20% in Canada and nearly 25% in the United States since the beginning of 2020 due to cumulative inflation.
How does this affect my business?
In 2026, businesses are feeling the effects of inflation from fluctuating energy prices, fuel costs, interest rate tensions, and changes in consumer spending.
In 2026, small and medium-sized businesses are enduring a more severe impact from inflation than large corporations, primarily because they lack the scale to absorb soaring operational costs or command supply chain leverage. The National Federation of Independent Business (NFIB) reports that small business optimism has fallen to its lowest level since 2024, with inflation ranked alongside taxes as their single most pressing issue.
Where is inflation hitting your business the hardest?
Across North America, most businesses are not being hit by a single cost, but by several rising together. The biggest pressure points vary somewhat by industry, but the following stand out:
| Pressure points | How its affecting your business |
| Labor |
U.S. inflation is outpacing nominal wage growth, resulting in a net decrease in real wages and purchasing power. While nominal wages and salaries grew by 3.4% annually, inflation sat at 4.2%. This shortfall means workers’ purchasing power is shrinking, though baseline pay budgets remain relatively stable at 3.5%. Despite stagnant real pay for workers, the actual cost of labor for businesses is rising. |
| Gas and Fuel |
Gas and fuel inflation significantly increases operating costs by raising expenses associated with transportation, logistics, and daily business operations. As fuel is essential for many industries, rising prices shrink profit margins and often compel businesses to either increase the prices of their goods and services or absorb the resulting financial losses.
|
| Utility Costs |
Commercial electricity and water rates have surged, with average power prices rising significantly across the U.S. and Canada. In some regions, power prices increased by more than 25% to 76% due to regional supply constraints. |
| Costs of Good and Materials |
Rising costs for goods and materials force businesses to either increase prices, which may reduce customer demand, or absorb the extra costs, lowering profit margins. This can strain cash flow, reduce opportunities to invest in business growth, and make long-term planning more challenging. |
| Rent inflation |
Rent and leasing increases raises fixed operating costs for businesses. As an unavoidable expense with no direct return on investment, increasing rent reduces profit margins, limits cash flow for growth and hiring, and can lead to downsizing. |
How businesses reduce costs during inflation?
Although businesses cannot control inflation, they can implement practical strategies to minimize its effects and maintain profitability. By carefully managing operations and financial planning, companies can better navigate the challenges associated with periods of high inflation.
Lowering Utility Costs: Utilities are often one area most owners don’t even realize they are losing money. Energy, gas, waste, heating/cooling, and other operational audits can significantly help businesses identify where they are losing money. For example, small errors with natural gas metering could be costing your business money in ways that you never realized. If after a meter is installed and running, the utility doesn’t perform regular checks to ensure it doesn’t drift out of calibration. Over time, it’s natural for certain components to shift or wear down, but this can lead to inaccurate readings and therefore lead you to paying more for the gas bill each month.
Cost reduction consultancy: One of the most strategic ways businesses can counteract the effects of inflation is through cost reduction consultancy. https://www.schooleymitchell.com/what-we-do/Cost reduction consultancy can help businesses by:
Combating Rent Inflation: To manage rising rental costs, small businesses can negotiate long-term leases with fixed rental rates, sublease unused space, or relocate to more affordable locations. Negotiating rent prices with landlords is the most effective way for businesses to manage rising rent prices. In many cases, receiving lower rent from a reliable tenant is preferable to leaving a property vacant. Businesses can improve their chances of securing a rent reduction by following these strategies:
In conclusion, while inflation continues to challenge businesses by increasing expenses and putting pressure on profitability, rising costs do not have to determine a company’s future. Small changes such as identifying hidden costs, improving efficiency, and negotiating better terms can have a meaningful impact on reducing operational costs.
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