A new survey of small business costs shows operating expenses have risen by 24.6 percent since the start of the COVID-19 pandemic.
Starting from a base of 100 in March of 2020, the AMP Bank Business Cost Pressure Index tracks key operational inputs to determine where expenses have grown most, weighted by AMP economists to reflect their overall significance.
“Some inputs represent a larger share of an owner’s cost base than others. The weightings are broadly indicative, recognising that different businesses will have different mixes of cost pressures,” the report (pdf) says.
Leading the rises is the cost of insurance, which has risen 52 percent over the past six years.
Fuel is up 38 percent, interest costs have climbed 36 percent, and electricity has increased by 26 percent. Despite a constrained economy, commercial rents have also risen by 23 percent.
Meanwhile, wages—which on average account for half of small business running costs—have gone up by more than 20 percent.
Even as headline inflation declines, many small businesses are still under pressure, according to AMP Deputy Chief Economist Diana Mousina.
“While inflation has come down from its peak, many small business costs remain high,” she said. “That creates a difficult balancing act, especially when margins are already tight and consumers are feeling their own inflationary pressure and are increasingly price sensitive.”
Multiple Cost Pressures
The report attributes the ongoing pressures to a compounding chain of factors.
Following the initial COVID-19 disruptions, supply constraints, freight costs, skill shortages, and changing consumer behaviour began feeding into business costs in 2021.
A year later, natural disasters, higher claim volumes, reinsurance pressures, and material shortages triggered sharp increases in insurance premiums that persisted through 2023.
Also in 2022, global energy and fuel volatility into Russia’s invasion of Ukraine created domestic supply challenges in Australia, pushing up transport, delivery, and raw material costs.
Between 2023 and 2024, rent, wages, and energy costs also rose sharply. A tight labour market, higher award wages, elevated power prices, and higher occupancy costs created severe pressure, particularly for service-based businesses.
Currently, small and medium enterprises (SMEs) face what AMP economists call “sticky costs”—expenses that quickly rise as business activity increases, but fail to fall by the same relative amount when activity slows. Fuel, energy, rent, and insurance remain elevated, while the Fair Work Commission’s recent 4.75 percent increase to minimum and award wages adds further cost pressure for many employers.
Some Positives on the Horizon
Mousina noted there are some positive signals ahead for business owners.
“Some of these issues will abate in the second half of the year,” she said. “Fuel prices have fallen a lot, and the government announced additional small business tax carve-outs around capital gains tax changes. Permanent instant asset write-offs in the federal budget will also provide a boost for small businesses.
“Inflation is also slowing, but not fast enough, which does mean a high chance of further interest rate increases this year which will keep consumer spending constrained.”
AMP projects the Business Cost Pressure Index will reach 127.1 by the December quarter this year.
Deloitte Access Economics’ June 2026 Business Outlook painted a similarly muted picture, noting that strong population growth was masking poor business productivity.
Persistent interest rates and fuel prices are expected to keep the Consumer Price Index (CPI) elevated above 4 percent for the rest of this year, dampening overall consumer demand despite recent budget measures such as the $250 Working Australian Tax Offset and a $1,000 instant tax deduction.
