In the past years the several economies of the world have continued to face some down moments. This to a large extent has continued to affect the stock market as well as businesses. It is no wonder that some entrepreneurs have continued to scream blue murder as they do not know for how long this might be. However, in all they desire better and favorable working conditions.

Here we would be looking at the ways the interest and inflation affect the stock market and businesses. In the true sense of the word, price increase is supposed to shield businesses from the effects of inflation. But alas, this isn’t the case as they actually deal a sad blow by eating up most of the dividends they acquire in asset requirement.

The stock price for instance does continue to rise along with earnings. This is because as inflation increases, so does the central banks continue to increase their own interest rates to increase money supply. Here are some of the ways your business and stocks are affected.

7 Ways Interest Rate and Inflation Affect the Stock market and Businesses

1. People Do Not Borrow

It is only logical and perhaps natural to find that when interest rates become high, people refuse to borrow money from banks. Why is this so? This is so because it becomes an expensive task to borrow. One of the effects therefore is that there would be less money floating around.

For instance; you do not want to go to a bank to borrow some money, only to find out that the interest rates as it was before was now perhaps 50 percent more than it used to be. This means that there would be an adjustment so that you stay within the money you have rather than borrow. In other cases, you may decide to borrow from other less cumbersome sources rather than a bank.

2. Low Returns on Stocks-: When there is the crisis of inflation and high interest rate, then it becomes really difficult that the rewards on stocks are high. It is for that reason that returns on stocks are adjusted downwards to meet the demands of the crisis.

3. Increase in Prices

As the inflation bites hard and prices of commodities rise, so would the price of your goods also rise? This is so because you would be needed to keep pace with inflation. Failure to do this would be tantamount to you not being able to match up with the way the market trend is going. If on the other hand you fail to increase the prices of your goods and services, then you would not meet up with your profit margin and you might not be able to pay your employees the way they deserve. When all of this occurs then you may likely struggle to stay afloat.

4. Low Patronage

As the interest rate and inflation rears its ugly head and prices of commodities shoots up there is the tendency that people may look for simpler ways or cheaper products to turn to. What this means is that you may likely lose some of your customers. This is because the high price of goods and services might cause the supply of goods to be low.

5. Slim Profit Margin

It might not be business as usual for you in business especially during the inflation period. This is so because whilst the stock market is being affected, your profit margin may have to also go through a dip. This is because if in the time past you have always enjoyed a 50 percent profit, you might have to plummet to about 10 or 20 depending on the level at which the economy in your country is going through the crises of interest rate and inflation.

The idea therefore is that you make do with what you have despite the dip as things unfold; even though this might not be too good period for your business, but on the other hand it does mean that you still have something little to fall back on despite the crunch.

6. Housing Increases

One of the effects that interest and inflation has on the stock as well as your business is that you would find that the cost of mortgages also has increased. This is because of the fact that in the stock market of most countries housing is one of the industries that is listed. What then happens when housing is increased, it means that as a result of inflation, there might be the tendency to increase the price of housing, thereby making it pretty difficult for some folks to be able to afford their choice homes.

On the other hand, for those who might be able to afford these houses, you might be shocked to know that they would be paying quite higher than what they ordinarily should have paid, were there no inflation.

7. Fixed Investments Suffer

If you have been the type who have your investment portfolio in the fixed interest rate category, then your interest rate would suffer when the interest rate rises. This is because dividend paying stocks are those that are worst hit because of their intrinsic values. It is for this reason that it is important that when there are news filtering about a possible inflation, then it becomes important that you might have to quickly sell of your stocks so as to be on a safe side.

These are 7 ways that your business and stock may be affected by the interest rate and inflation. It is also worthy to note that no condition stays permanent.

7 Ways Inflation Affect the Stock market and Businesses
Latest posts by Ajaero Tony Martins (see all)