More than half of SMEs raising prices to cope with inflation

Despite a fall in inflation, business optimism among SMEs has remained stagnant 

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More than half of Irish SMEs have taken steps to raise prices, with business optimism stagnating despite falling inflation.

According to the latest Linked Finance SME Confidence Index, businesses are looking to boost earnings as general price levels gradually decline, with 54% taking measures beyond pricing to mitigate the impact of inflation.

As a result, 34% of SMEs have reported a cut in their operational costs, 19% have sought further product diversification and 12% have introduced discounts to navigate the challenging economic environment. 

Despite added tightness, the survey noted a positive sign as fewer businesses anticipate falling activity in the next quarter. With inflation now at 5.6% - according to the CSO's Consumer Price Index - down from a 38-year high of 9.6% in July 2022, more than four-fifths of businesses expect to perform better or in line with projected forecasts compared to last year.

“Notwithstanding inflation and a price squeeze on businesses and consumers, there is evidence of the resilience that defines Ireland's SME sector and reflects its adaptability in the face of changing economic currents,” said Niall O’Grady, CEO of Linked Finance.

"Overall, the Q2 2023 SME Index sees a notable levelling off in business optimism. The latest Index showed Business Optimism at a level of 61.90 (out of 100), only slightly up from 61.62 a year ago, despite a large drop in inflation during the same period last year."
However, the survey reported a "remarkable performance," in the retail sector, which it said "defied expectations."

"Retail businesses have seen significant gains in their business activity. Recent findings from the ESRI also found that strong improvements in retail sales continue to drive growth in the Irish economy," it said.

However, 75% of Retail & Wholesale businesses have increased their prices, reflecting the overarching trend of price adjustments in response to inflationary pressures.

“While challenges remain, the anticipation of improved business activity for Q4 2023 and the potential for job growth in regional markets provide hope for SMEs." Mr O'Grady concluded.