Stagflation: What It Means for Business Owners and How to Prepare

Economic cycles are never simple; stagflation is among the trickiest. When inflation is high, growth is stagnant, and unemployment creeps up, the usual levers

(rate cuts, fiscal stimulus) don’t always work—and may even worsen one problem

while trying to solve another.

A Look Back: The 1970s Stagflation Crisis in the U.S.

The last time the U.S. experienced full‐blown stagflation was in the 1970s into the

early 1980s. Key triggers included:

•  Oil price shocks (notably the 1973 Oil Embargo and the 1979 Iranian Revolution) which sent energy costs surging.  

•  Loose monetary policy early in the period, rising budget deficits, and wage‐price spirals as businesses and workers pushed for higher wages to catch up with rising costs.  

• A breakdown of assumptions underpinning economic policy tools: e.g. the Phillips Curve, which had suggested a trade-off between inflation and unemployment, did not behave as expected. Inflation remained high even as growth and employment faltered.  

The consequences were serious:

•  Inflation rates in the U.S. reached into double digits (for example, above 13% in 1979).  

•  Unemployment similarly rose, in many periods above 8-9%.

• Businesses faced rapidly rising costs (energy, wages, raw materials), which squeezed profit margins; borrowing costs soared; consumer spending power weakened.

Eventually, strong monetary tightening (notably under Fed Chair Paul Volcker),

coupled with falling energy shocks, helped bring inflation under control—though

the cost was a deep recession in 1981–82. 

What Experts Are Saying Now

Here are some recent quotes and observations from credible sources, showing why

stagflation is back on many business owners’ radars:

•  “The bottom line is that the risk of stagflation has risen meaningfully,” said Olu Sonola, head of U.S. economic research at Fitch Ratings, in a recent client note. He pointed to sticky price growth and signs of labor market softening.  

•  The Chicago Fed Chief Austan Goolsbee recently said: “There is nothing more uncomfortable than the stagflationary environment … where both sides of the mandate start going wrong. … Higher tariffs raise prices and reduce output so that is a stagflationary impulse.”  

•  From Business Insider:

  “If you let go too early, it springs back up,” Higgins said of inflation. “And that’s why you have to go too far in the other direction.” It’s a tough pill to swallow, but this course of action often leads to an economic downturn. “If you don’t extinguish inflation decisively … it’s going to pop back up at a higher level.”  

•  From Reuters:

  “Signs that the U.S. economy is facing stagflation were evident in the latest readings … economists from the Bank of Montreal (BMO) warn …”  

These are not just theoretical concerns. The data is showing combinations of

slowing growth, elevated inflation, and potential softening in labor markets. For

business owners, that means the environment could shift quickly.

How Business Owners Can Prepare for Stagflation

Here’s a refined list of strategies, integrating what was earlier with added levers

drawn from recent expert commentary.

Strategy	What to Do	Why It Matters
Protect Cash Flow & Liquidity	Maintain rigorous cash-flow forecasting; build cash reserves; avoid overleveraging; renegotiate payment terms with vendors; preserve access to credit lines while credit is still available.	In stagflation, costs rise and credit can get tight. Having liquidity provides freedom to ride out shocks.
Cost Control and Supply Chain Resilience	Audit major cost inputs: energy, materials, labor. Lock in supply contracts if possible. Diversify suppliers. Explore efficiencies: automating, reducing wastage, optimizing inventory.	You can simply pass all costs to customers many industries will be price sensitive. Cost control protects margins.
Pricing Discipline & Value Differentiation	Shift toward value-based pricing when feasible. Be transparent with customers about cost pressures. Consider tiered offerings so customers can trade down rather than leave. Monitor input cost trends so you can adjust pricing more frequently but more smoothly.	Preserves customer trust and minimizes sticker shock. Help avoid gross margin erosion.
Revenue Diversification	Expand into less cyclical markets; consider service or subscription models; increase recurring revenue streams; explore export or geographically diversified sales (where you can).	If one area of business slows, others may hold up. Recurring revenue reduces volatility.
Monitor Leading Indicators / Scenario Planning	Track inflation measures, input cost indices, labor cost trends, interest rates, consumer sentiment. Build scenarios (mild stagflation, severe stagflation, no stagflation) with action plans. Stress test budgets under different inflation / growth / interest rate assumptions.	Early detection is useful. Scenario planning allows you to move before conditions get severe rather than reacting too late.
Financial Discipline and Prepared Balance Sheet	Reduce unnecessary debt; ensure debt structure is manageable even if interest rates rise; maintain or build equity cushion; limit fixed cost commitments you can flex.	Reduces vulnerability. High interest rates + weak growth + tight margins = risk.

What Small & Mid-Size Companies Gain by Having a Strategic CFO

Having a strategic CFO (or someone in a CFO in a strategic role) is much more

than just keeping the books. In conditions like stagflation, the role becomes vital.

Here’s what a small or mid-size company gains:

1. Proactive Financial Insight & Forecasting

A strategic CFO doesn’t wait for monthly financials—they build forward-

looking models, scenario analyses, and stress tests. When inflation and growth trends shift, they can project what that means for cash flow, financing, and profitability.

2. Cost Optimization & Margin Management

They identify areas where costs can be trimmed or optimized without sacrificing core capabilities. Margins often erode first during stagflation; a CFO focused on strategic cost management can preserve margin better than a reactive approach.

3. Capital Structure & Financing Strategy

Stagflation often brings rising interest rates and tighter credit. A CFO helps ensure the company has access to credit when needed, avoids unfavorable financing, and structures debt to minimize exposure to rising rates. That might include locking in fixed rates, reducing variable-rate debt, or staging future capital needs wisely.

4. Pricing & Product/Service Mix Strategy

In tough times, pricing power becomes critical. A strategic CFO supports marketing and operations in understanding cost drivers, customer price sensitivity, and where product/service differentiation or tiering can support pricing without losing volume. They help avoid margin erosion.

5. Risk Management & Contingency Planning

Identifying supply chain risks, inflationary exposures, wage pressures, regulatory or tariff threats—all part of what a CFO should monitor. Then designing contingency plans (e.g., alternate suppliers, hedging, price escalators, contract clauses) so that the business is not caught flat-footed.

6. Investor/Stakeholder Confidence & Access to Capital

When business owners show stakeholders (investors, banks, suppliers) that they understand the risks, have plans, and are managing financials tightly, they can secure more favorable terms. In stagflation, lenders and investors become more risk-averse; being prepared helps in negotiations.

The True Meaningful Value of Being Prepared

Why is it not enough to hope things don’t get worse? Because in stagflationary

scenarios, doing nothing can cost dearly. Being prepared gives you:

•  Optionality: You can choose among many paths. If you have good visibility, you might raise prices incrementally. If labor costs surge, you shift suppliers. If growth slows, you reduce fixed costs rather than cutting reactive panic measures.

  
  

•  Resilience: You survive shocks. Building in slack (in cash, in flexible cost structures, in diversified revenues) may reduce peak profits in good times, but it often makes the difference between staying alive or having to shut or heavily downsize during bad ones.

  
  

•  Strategic advantage: Many competitors may assume “this won’t happen,” delaying action until it’s too late. If you move early—secure favorable supply contracts, strengthen customer relationships, align your cost base—you can emerge stronger when others are scrambling.

  
  

•  Leadership credibility: Internally, employees gain confidence when leadership demonstrates planning and control. Externally, vendors, lenders, and customers are more willing to trust a company that looks ahead.