March 03, 2008 at 1:00 am by Tom Lydon
How does inflation impact the market and your exchange traded funds (ETFs)? High inflation is bad for equity prices, and the only thing worse for stocks is deflation.
Eddy Elfenbein for Crossing Wall Street reports that stock returns do poorly when deflation runs above 5.6%, with stocks doing well when inflation runs at a rate of 3.1%. Anywhere above 5%, and stocks will flat line up to an inflation rate of 12%, when considering inflation-adjusted returns. After 12%, things can get ugly.
The rate of inflation in January, according to Inflation Data, was 4.3%.
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