Minneapolis CNN Business  — 

When Teri Byrd opened her 4 Paws Veterinary Clinic in Vashon, Washington, four years ago, her sights were set on growing the business.

And she was successful – at first.

But Covid, disrupted her business like it did many others. After the initial pandemic shutdowns, her business was helped by federal aid and by a wave of new pet adoptions, but the subsequent supply chain upheaval, labor shortages and surging price inflation forced her hand – she eventually had to raise the clinic’s prices.

Medical supplies had gone up by about 25% to 30% across the board, and many of her employees left the field, making it that much harder and more expensive to get qualified job candidates to the island where her clinic is located. Some days, she had to shut down the clinic because she had no staff available. She raised her wages by $10 an hour for technicians and $5 an hour for assistants, and she cut her personal salary from $150,000 to $65,000.

4 Paws is fully staffed as of only recently, but the months of price pressures took their toll.

Teri Byrd, of 4 Paws Veterinary Clinic, in Vashon, Washington.

“I finally [raised prices] last week. I never did before, and I really didn’t want to,” Byrd told CNN Business. “I could see the writing on the wall. I would have had to close the clinic.”

The decades-high bout of inflation that has weighed heavily on Americans during much of this year has, in recent months, settled more deeply into the businesses that offer services like pet care, hair cuts and dry cleaning.

While goods-producing sectors have a variety of costs to consider, including supply chains and volatile commodity prices, the main expense for service businesses is labor, said Agron Nicaj, US economist for Japan-based MUFG Bank.

Over the past year, wages have been on the rise, thanks in part to an extremely tight labor market that developed as the nation recovered from the pandemic. Unlike goods prices, which are more dynamic and can rise and fall based on supply and demand, wages tend not to be adjusted downward.

And that’s exactly where inflation can get “sticky,” meaning once prices for services rise they tend to remain at those levels for some time.

“When you have strong price pressures in the services sector, they’re likely to last longer,” Nicaj said.

And that’s troublesome for consumers, small business owners, and, especially, the Federal Reserve, which is trying to extinguish stubbornly high inflation, said Christopher S. Rupkey, chief economist for economic and market research firm FwdBonds LLC.

“The Fed is going to need a bigger hose if it wants to put out the inflation fire, because once price increases spread to services, the battle is hard for a central bank to win without jacking up interest rates high enough to produce the demand destruction normally seen only in severe recessions,” Rupkey told CNN Business.

‘I don’t think they’re going back down’

The broader economic uncertainty and wild price swings that have marked 2022 turned running Hairrari, a New York City-based barbershop, into a chess game, said Magda Ryczko, who started the business in 2011 and has since expanded it to three New York City locations and one each in Los Angeles and Portland, Oregon.

The laundry per pound increased in price, electricity shot up and cost of living expenses grew for Hairrari’s staff, including many who have worked there for nearly a decade.

“I think this year, we adjusted our prices two or three times,” Ryczko said.

Previously, a new style and short haircut was $65, including tax. Ryczko kept the cost of the cut at $65 but asked customers to pay tax on top of that. As costs grew and the New York City market rate for haircuts rose, she bumped up the price to $70 and $75 for most clients. (She added that some are still $65).

Magda Ryczko working at Hairrari hair salon in New York.

“It’s not really high-end, it’s not really low-end; I like to keep my brand in the middle,” Ryczko said. “I feel like once we raise [prices,] I don’t think they’re going back down. That’s the risk that you also take as a business raising prices, because you may lose clients.”

To Ryczko, it’s a strategic balancing act. She’s tried to offer discounts and pay-what-you-can services for clients who can’t afford the increase, but she also sees the increases as a reinvestment in her business and her staff.

“I just want people to be not struggling, so any way I could maximize the wages I could pay so people can be happy and stay with me for a long time, I think that’s really important,” she said.

Some customers have been understanding, she said, noting feedback she’s received from clients who appreciate Hairrari’s inclusive and gender-neutral approach and its efforts to donate free and discounted haircuts to community members and organizations.

“They say they’re so proud of us,” she said. “When we hear that feedback, it just makes it worthwhile. It just shows the more positive they look at it, they understand.”

She added: “Dinner’s $100 in New York. It’s just relative.”

‘Those quarters add up’

The cost of so many seemingly insignificant parts that go into running a dry cleaning business — from plastic bags to wire hangers — have risen significantly in the past year, said Steve Collins, the third-generation owner of Sig Samuels Dry Cleaners in Atlanta.

Broy Crosby (left) and Steve Collins (right), owners of Sig Samuels Dry Cleaners in Atlanta, Georgia.

The biggest challenge right now, he said, is to find a way to cover some of those extra costs by charging more – without feeling like he’s gouging customers at a time when everybody is having to shell out more money.

Collins’ approach has been to make small, incremental increases: Last year, a pair of pants cost $5.75 to clean; a year before, that ran $5.50. Now, the price is $6.25.

“To increase a quarter here or a quarter there, is significant,” he said. “It may not be to a person that comes to see me, but those quarters add up.”

Collins also took the approach of expanding Sig Samuels’ breadth of services, which previously was focused on professional attire.

“I’ll do anything from a drapery to a wash-and-fold of the household towels and undies,” he said. “We did not do that before.”

Collins joked: “Heck, I’ll wash your dog, if he’s not a biter.”

Every time he has had to raise prices, it’s been difficult, Collins said. But it was necessary in order for the dry cleaner to stay in business.

“We don’t have any plan in place to go back, but we are hoping to hold steady as long as possible while still making sure to increase the way we can take care of our folks,” he said.

Hoping for stability

Genora Boykins and business partner, Sharon Owens, run La Maison in Midtown, a seven-room bed and breakfast in Houston and they’ve been seeing inflation in the cost of eggs, bacon, bottled water, cleaning supplies, soaps, toilet paper and other products.

Genora Boykins and Sharon Owens at La Maison in Midtown, a seven-room bed and breakfast in Houston.

“I don’t know of any goods that we are utilizing that haven’t increased in cost,” Boykins said.

But being in the hospitality business, they try to be very conscientious about any potential negative effect on a guest’s experience, so they aren’t willing to pass all of those costs along.

“You want to remain competitive, so you can’t just continually go up on your room rates over and over and over again without some consequences,” she said.

To reduce some of the financial impact, Boykins and Owens now check with guests to see if they want breakfast, so that food is not wasted. They try to encourage longer stays to avoid the cost of turning over a room every day. They’re constantly on the lookout for bargains on supplies.

“We’re just optimistic that things will improve, that things will get better,” Boykins said. “Even if it doesn’t necessarily turn around, at least you don’t want [prices] to continue to escalate month after month after month.”