Director: ReVive Advisory & Turnaround
In June, we began discussing stagflation and the challenges it may pose to companies, particularly those that are poorly run but operate within a thriving market with high demand.
The impact of stagflation on South African companies can be severe as it adds a dangerous layer of complexity to South Africa’s already fragile economic environment. As businesses grapple with high input costs, stagnant demand, and a rising cost of capital, the combination of inflationary pressure and minimal growth erodes profitability and strategic visibility. For sectors already on the brink, stagflation accelerates and exacerbates financial distress, undermines recovery prospects, and reduces investor confidence.
Challenging navigation
In such a volatile landscape, navigating cost structures, pricing strategies, and workforce sustainability becomes significantly more challenging, requiring decisive, adaptive leadership to stabilise operations and preserve long-term viability.
In this article, we will examine how companies in two additional operating environments could be impacted by stagflation.
The warning signs that companies may be approaching a stagflation environment are:
- Persistent inflation with stagnant output.
- Rising input costs.
- Inconsistent policy decisions; and
- Productivity decline.
In this environment, resilience is key. Businesses must strengthen cost controls, adapt to supply chain volatility, and remain responsive to shifting policy landscapes. As discussed last week, the four-dimensional model for assessing distress remains highly relevant. In our next focus, we will explore how two of these dimensions intersect with the realities of stagflation, and what companies in vulnerable sectors can do to stay ahead.
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A well-run company in a challenging (bad) market
Well-run companies operating in structurally challenged or volatile markets are not immune to the pressures of stagflation; in fact, their operational discipline may be tested more rigorously than ever. While strong governance, prudent cash flow management, and agile leadership provide a foundational advantage, stagflation compresses margins and disrupts planning certainty even for the most resilient firms.
Input costs will increase while consumer demand weakens, eroding pricing power and forcing difficult trade-offs between cost control and value delivery. Increased trade discounts to maintain share will also abate the inflationary trend in CPI but not assist with the companies own internal inflation.
Companies may find that traditional efficiency levers yield diminishing returns unless they are coupled with broader strategic pivots, such as product reengineering, supply chain redesign, or new market entry.
That said, these businesses are also uniquely positioned to outperform their peers if they can respond with speed, clarity, and foresight. Their established risk frameworks, strong stakeholder relationships, and operational maturity enable them to make high-conviction decisions under pressure.
Stagflation rewards those who lead with adaptability: adjusting pricing intelligently, protecting core revenue streams, and investing selectively in capabilities that enhance long-term differentiation. It is not just about surviving adverse conditions but using them as a proving ground to sharpen competitiveness and reinforce strategic positioning. In tough markets, the well-led business becomes not just more efficient but more formidable.
For these business Stagflation is both a threat and an opportunity. Industry consolidation and organic growth can be achieved for these companies. It may be at the expense of margin, but the business will be larger and able to maintain operations for longer. The temptation to increase pricing in a stagflation environment only exists in very defined circumstances and are peculiar to each industry.
Well-run companies in thriving markets
Well-run companies operating in thriving market sectors may appear insulated from the pressures of stagflation, but even they must tread carefully. Rising input costs and wage demands can erode profitability, even when demand remains robust. These businesses are likely to face higher expectations from both customers and shareholders, who assume resilience equals immunity. Stagflation introduces complexity into pricing, procurement, and workforce management, requiring proactive scenario planning and flexible margin strategies to preserve growth momentum without compromising long-term value creation.
However, thriving market conditions also offer a powerful runway. Well-led companies can use this moment to gain market share as less-prepared competitors falter. Their financial strength and operational agility enable them to invest where others retreat, whether in strategic talent, digital capabilities, or supply chain resilience. With disciplined capital allocation and targeted innovation, they can convert macroeconomic headwinds into opportunities. In a stagflation environment, leadership is not about weathering the storm; it is about positioning to accelerate when the skies begin to clear.
Seasoned executives, diverse industry resources, and a unique turnaround perspective.
