What Does Increasing Inflation
Mean for Stocks?
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Prices of goods and services are
inching up and according to The Wall
Street Journal the Fed is not going to
get in the way of a little inflation.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Inflation has begun picking up, and it
looks as if the Federal Reserve is
going to let it keep climbing.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
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http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
The Labor Department on Tuesday
said that consumer prices rose by
0.3% in September from August,
putting them 1.5% above their year-
earlier level.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
With gasoline prices stabilizing,
annual inflation ought to push above
2% on the year within a couple of
months.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Core prices, which exclude food and
energy costs, have been there for a
while.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Last month they were up 2.2% on
the year.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
The worry on the mind of Wall Street
for the last couple of years has been
that in order to stay ahead of inflation
the U.S. Federal Reserve will start
raising interest rates and high
interest rates would hurt stocks.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
It appears that the Fed might not be
as worried about inflation as we all
thought.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Assuming that the Fed does not
raise rates very fast and inflation
goes up, what does increasing
inflation mean for stocks?

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
How Inflation Affects
Stocks

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
The effect of inflation on stocks is
that profits and prices eventually
decline.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Investopedia discusses
inflation’s impact on stock returns.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Rising inflation has an insidious
effect: input prices are higher,
consumers can purchase fewer
goods, revenues and profits decline,
and the economy slows for a time
until a steady state is reached.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
This negative impact of rising
inflation keeps the Fed diligent and
focused on detecting early warning
signs to anticipate any unexpected
rise in inflation.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
But once the unanticipated inflation
works its way through the levels of
economy, the impact of a higher
steady state of inflation can have
varying effects.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
In other words, the unexpected rise
of inflation is generally considered
the most painful, as it takes
companies several quarters to be
able to pass along higher input costs
to consumers.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Likewise, consumers feel the
unexpected “pinch” when goods and
services cost more.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
However, businesses and
consumers eventually become
“acclimated” to the new pricing
environment

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
and then even when a new higher
steady state is reached, the
expected inflation that may occur
thereafter can result in consumers
spending more cash.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
These consumers become less likely
to hold cash because its value over
time decreases with inflation.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
For investors, this can cause
confusion, since inflation appears to
impact the economy and stock
prices, but not at the same rate.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Those who gained adulthood in the
1970’s remember going Target to
buy garden supplies in the fall
because the same supplies were
going to be much more expensive in
the spring.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
Inflation is disruptive on several
levels.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
The end result at the end of the
1970’s was called stagflation in
which the economy stagnated along
with stock prices while the cost of
living kept going up.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
When inflation is a dominant factor
companies quit hiring to save on
salaries which retards growth.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
This was the stagflation effect that
the Fed is usually concerned about.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
The problem today is that the Fed is
so worried about choking off the
recovery that they are probably
going to wait a bit longer.

http://profitableinvestingtips.com/stock-investing-tips/what-does-increasing-inflation-mean-for-stocks
This generally heartened the market
as the immediate effect of higher
rates is a drop in stock prices.