How Stagflation Affects Small Businesses in Australia - and What You Can Do About It
- Future Accounting
- Jul 21
- 3 min read
Updated: Jul 22
Understanding how stagflation affects small business and preparing for what’s ahead
In the ups and downs of the economy, one scenario makes small business owners especially uneasy — stagflation.
It’s a term you might’ve heard in the news lately, especially as Australia faces uncertain economic conditions. But what does it actually mean? And more importantly, how does stagflation affect small business?
What Is Stagflation?
Stagflation is when three difficult economic trends hit at the same time:
Stagnant or shrinking economic growth — the economy slows right down.
High inflation — everyday costs for goods and services keep rising.
Rising unemployment — more people lose jobs or have their hours cut.
These conditions make it tough for everyone — especially policymakers, who can’t easily fix one problem without making another worse. For example, raising interest rates might help slow inflation but could also increase unemployment and slow growth even further.
Let’s unpack the risks — and what you can do to stay ahead of them.
Is Stagflation happening in Australia?
Not quite — but the warning signs are here.
In 2025, Australia’s economy is cooling. Growth has slowed to near-zero, consumer spending is soft, and businesses are holding off on major investments. Wages aren't keeping up with the cost of living.
At the same time:
Inflation, especially in services and housing, remains stubborn
Interest rates are high, and the RBA is under pressure — unsure whether to pause, cut, or increase further
Unemployment is creeping up, with more people underemployed or working fewer hours than they want
We’re not in full stagflation yet — but many experts warn that conditions are lining up. If they worsen, it could present real challenges for small businesses.
How Stagflation affects small business
Small businesses tend to feel the pinch faster than big corporations. Here’s how stagflation can impact day-to-day operations:
Rising costs with little room to move
Energy bills, rent, materials and wages go up — but passing those costs on to customers isn’t always possible. Margins get squeezed quickly.
Customer spending slows down
When people feel uncertain about their jobs or struggle with rising prices, they cut back. This hits hospitality, retail, tourism, and lifestyle businesses hardest.
Tighter access to finance
Higher interest rates make loans more expensive. At the same time, banks often tighten lending rules, making it harder to access credit for stock, wages or equipment.
Staffing pressures
Employees may ask for higher pay to keep up with inflation. But small businesses don’t always have the capacity to meet those expectations — leading to turnover, reduced hours, or burnout.
Stock management and supply chain risks
Buying in bulk to hedge against future price hikes can seem smart. But if demand drops off, you risk getting stuck with unsold stock and strained cash flow.
What can small businesses do to stay resilient?
While stagflation presents a tough environment, there are practical steps you can take to protect your business:
Looking Ahead
Australia may not officially be in stagflation, but the risk is growing. For small business owners, now is the time to:
Strengthen cash reserves
Improve operational efficiency
Stay across key economic trends — especially interest rate decisions and inflation movements
Final Thoughts
You can’t control the economy — but you can control how your business responds.
Understanding how stagflation affects small business is the first step. The second is getting proactive: sharpen your financials, adapt your strategy, and build flexibility into your operations.
Need help preparing your cash flow forecast or reviewing how resilient your business is? Reach out — we’re here to help you weather whatever comes next.
