How Can Businesses Prepare for US Stagflation?

Stagflation is obviously a bad situation but its not a surprising outcome at all; the new US administration policy mix has been focused on putting downward pressure on the economy and upward pressure on inflation (tariffs do both) [1,2].

So, effectively consumer spending would likely move down as unemployment moves upward, while the cost of goods sold moves up. This reduces revenues, increases costs, and tightens businesses margins. Unless the business deals in products such as raw inputs, of which they may adjust prices with inflation.

Its impossible to have perfect foresight into these issues: Will the Trump administration reverse course? Will the effect be small or large for an individual business? When exactly will the period of stagflation occur, if it does occur? Generally, we expect stagflation to occur though and I'd recommend your team develop preparations contingent on cases of varying magnitude to cover a variety of expected scenarios (by the way, this should include, 'how do we best capitalize on an economic upturn?').

How should businesses prepare?

1. Strengthen cost controls. If possible, tighten inventory management (avoid shortages, obviously, but reduce stock in hand as sales may slow and decrease inventory turnover). You can attempt to negotiate with your suppliers, not just referring to reduced pricing but longer term financing to improve near term liquidity conditions. If you have done this already, improve the efficiency and productivity of your employees, cross-train in case certain functions need to get cut, introduce more automation, move towards overtime instead of new hires.

2. Secure demand. Find ways to retain clients through loyalty programs and by emphasizing differentiators that command margins. Move into less price elastic services/products if possible, offer customers new financing terms (balance this, of course, with the counterparty risk present in the form of credit default for example), and incrementally introduce increased prices.

3. Improve operations and liquidity. First, understand that if you are in or expect to be in a liquidity crunch, its very unlikely that you should extend financing terms (as mentioned above) and instead aim to increase receivables turnover (reduce the collection cycle). Consider refinancing debt at this time and increase cash on hand.

4. Communicate. Make sure your employees, customers, and investors all 'understand' the situation from the appropriate perspective (so as to, perhaps shamelessly, extract the most value from them). Clients could be told that price increases are the result of improved value (provided some of this is truth). Investors could be told the company is trying to smooth revenues by introducing loyalty programs, and employees may hear that over-time is a way of recognizing the value of the team and giving the opportunity of additional responsibilities to people. The summary point is that no one outside of the decision making sphere should hear, 'there is a problem' (especially when these forecasted problems may not even consolidate) only, 'things are changing and we're adapting'.

In summary, prepare to lose money. If you don't have the time or resources, consider outsourcing...

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References

[1] Bank of America sees stagflation, not recession—and no rate cut this year. (2025, August 8). Fortune. Retrieved from Fortune website: https://fortune.com/2025/08/08/when-will-economy-have-recession-stagflation-trump-immigration-inflation/ 

[2] Cerullo, M. (2025, August 8). Why Trump’s sweeping new tariffs are fueling stagflation concerns among economists. CBS News. Retrieved from https://www.cbsnews.com/news/trump-tariffs-inflation-gdp-stagflation-concerns/