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The Effects of Rising Gas Prices

The effects of rising gas prices are easy to feel when you’re filling up at the pump, but there are also ways in which these price hikes are affecting small businesses. In turn, businesses often have to make a series of decisions, sometimes difficult, to make up for those costs and maintain operations.

Logistics and Transportation

Especially for companies with vendors and suppliers transporting goods or delivering services that are essential to daily operations, rising gas prices increase the cost of doing business. As fuel prices increase, vendors and suppliers will tend to spike the price of their products and delivery so they can offset their transportation costs.

This is also quite significant for any small business that requires driving to meet their business model — for instance, plumbers and other building maintenance, delivery drivers, food trucks, transportation services like Uber, and so much more. This may impact how far these businesses are willing to travel and how often they offer services.

Retail Spending Declines

As consumers increasingly need to spend more of their income on gas, their discretional spending drops. High gas prices also discourage consumers from driving to places like malls or shopping centers, which leads to a rise in online shopping. This can be good news for companies that do business in eCommerce, but on the flipside can impact whether they need to increase shipping costs, and therefore, raise their prices for consumers. This can also impact a retailer’s decision to trim their geographic shipping radius or evaluate how many of their vendors and suppliers are overseas.

The Job Market

The job market can be especially sensitive to a spike in fuel prices as that spike significantly impacts the overall economy. If high fuel prices are making it difficult for a company to scrape by, they need to make adjustments — and if nothing else will provide enough relief, they may need to start considering layoffs or reduced hours for their employees.

Rising gas prices can also bring an economic recovery to a halt, which will often affect hiring practices. Companies may put off hiring anyone if they are concerned about the health of the economy, and it will also cause them to evaluate how consumer spending decline leads to less sales and ultimately impacts whether they have the ability to hire.

Increasing Prices

If the rise in fuel prices continues long enough, and companies have done everything they can to cut overhead costs, eventually they will face market pressure to pass that burden onto customers by increasing prices. In this scenario, it is important to find the most reasonable balance between meeting rising fuel costs and not losing an influx of customers and revenue.

The Big Picture

Ultimately, the effects of rising gas prices have a much bigger impact on the overall economy than simply watching the numbers go up at the pump. It can be challenging for businesses to navigate those waters, but it is possible to find a state of operations that keeps the engine running. If you need help with those or other financial business decisions, reach out to us at Republic Bank of Chicago. Call us at 800-526-9127 or find more financial tips on our website, including how to cut costs during inflation and how to analyze your cash flow.

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