Will We Be Experiencing Stagflation? How to Prepare Your Business

Will We Be Experiencing Stagflation_ How to Prepare Your Business

The United States could experience stagflation in 2024. Stagflation is the simultaneous appearance of rising prices, high unemployment, and slow economic growth.

As of April 2024, our country is not experiencing stagflation. Federal rate increases have slowed the rise in consumer prices and unemployment rates remain low.

Comparisons Between America’s 1970s Stagflation and Today’s Economy

Stagflation in the American economy last occurred in the 1970s. The United States experienced two recessions, high unemployment, and an elevated cost of living.

The similarities between the 1970s stagflation and today’s economy include:

  • Supply chain interruptions that contributed to higher consumer prices
  • Rising commodity prices that lead to higher costs
  • Central banks raising interest rates to reduce inflation

The differences between the 1970s stagflation and today’s economy include:

  • The U.S. Federal Reserve and other global central banks are focused on lowering inflation more than preserving employment.
  • The war in Ukraine and ongoing complications from the coronavirus pandemic increase the difficulty of slowing inflation.
  • The dollar is gaining value against foreign currencies.

How to Prepare Your Business for Stagflation

Consider implementing the following methods to prepare your business for stagflation:

Improve cash flow

Prioritize collecting on late accounts receivable. Also, ask vendors for the longest payment terms. These activities improve cash flow.

Reduce expenses

Find ways to reduce expenses to offset rising prices for materials and wages:

  • Consider whether you can use less energy for business operations.
  • Look for ways to improve the supply chain and reduce shipping expenses.
  • Determine whether you can order in bulk or have flexible delivery dates to receive business discounts.

Lower debt

Because your revenue might stagnate, focus on ways to reduce debt. For instance, pay off as much debt as possible. Also, consider replacing floating interest rates on debt with fixed interest rates so you pay less interest.

Elevate productivity

Consider investing in software or machinery to automate processes. You can produce products faster with fewer employees, minimal defects, and less waste.

Evaluate prices

Focus on whether other companies within your industry are raising prices. If they are, consider raising your prices to offset increasing costs.

Consider bundling products or services or changing packaging to increase the price per unit sold. Then, you might offset rising costs and remain profitable without a price increase.

Think about selling your product as a service. For instance, software companies used to sell their products, update them every 1-2 years, then focus on upselling. Today, most software companies sell software as a service. Customers pay monthly for software with automatic updates.

Boost product quality

If you decide to increase the product cost, boost the quality to justify the price increase. Most customers are willing to pay more for improved products.

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