Inflation & Your Stocks

How inflation pulls stock prices up, why everyone is in on the inflation narrative, and what it means for you

“Moderate, stable inflation is good for the economy” - it is something repeated in all Econ classes I ever took and, unsurprisingly, said by the mainstream economists.

The general reasoning is that inflation encourages spending which leads to more money sloshing around and a more robust economy.

In a true deflationary scenario (where prices of all goods and services go down over time), the argument is that people would hoard cash and put off purchases. This leads to a slowing economy as businesses go out of business and cash piles up.

Now there is a host of reasons I disagree with the above (people still need to make purchases - you can’t avoid buying food to buy it a nickel cheaper next week, people will stand in line for days to get the next iphone version despite immaterial changes from the one they own, and the general sense that savers should be rewarded), but let’s put all that aside.

I do think a large portion of the narrative around inflation being good is because people like seeing assets rise in price over time. And since they want to buy something at $100 and see it go up, they will rationalize why inflation is good.

Well, if you never bought into the pro-inflation economic argument, or genuinely are curious why inflation makes your stock price go up, then stick around for this post. It will cover why inflation helps stock prices, why the populace’s poor aptitude at math is hurting them, a little bit why the government has every incentive to keep the lie, and what to do with all this information.