MORGANTOWN, W.Va. (WBOY) — Inflation is surpassing 9%, the biggest such increase since 1981, and economists are now warning that we could see another major inflation-induced hike as the Federal Reserve is likely to raise interest rates a full percentage point. It’s the Fed’s most recent attempt to fight high inflation rates by tightening credit and discouraging borrowing. But economists at West Virginia University point out that this “economic tailspin” will hurt some businesses more than others.
Scott Schuh, Associate Professor at the John Chambers College of Business and Economics and the Center for Free Enterprise, and Director of the Bureau of Business and Economic Research John Deskins predict that businesses providing non-essential goods and services such as restaurants, jewelers, salons and gyms, may struggle significantly more than those that offer consumer essentials, such as groceries, gas, or home and auto repairs.
Schuh said businesses that carry products that are often dependent on credit or loans are also most vulnerable, such as housing, construction, and appliances. Even though the economic forecast looks bleak, economists say opportunities for entrepreneurs still exist as the market moves from tangible goods to services.
“One opportunity is for entrepreneurs in financial and non-financial industries to find ways to help customers manage the impact of inflation, which could take many forms,” Schuh said, “Consumers who hold a lot of cash that isn’t accumulating interest need to find ways to reinvest their money to get returns and guard their real balances. Drivers need to find ways to economize on gasoline purchases. Consumers could use help finding and maximizing coupons, discounts, and other ways to lower prices.”
Deskins advises that now is the time for almost any small business to aggressively negotiate with suppliers to keep prices low. He also said when consumers cut spending, the first items to go are usually luxury items and things they can easily live without.
“The businesses that are less susceptible to slowdowns in spending are those that provide a good or service that is viewed as a necessity and that does not have a close substitute,” Deskins explained.