Equities and inflation

[archived_user]

I have read that inflation is bad for equities, given central banks may intervene regarding economic growth.
I have also read that inflation is bad for equities in the short-term since it means higher input costs. However, in the long-term higher input costs are passed on to consumers, so producers get higher revenue and inflation is a good thing.
So is my understanding correct: in the short-term inflation is a bad thing since it means higher input costs, but long-term it means higher revenues? Is inflation good or bad for equities?

 

[archived_user]

Don’t honestly see this as short / long term issue ?
Main driver to me is whether inflation is above or below the expectations :
> inflation at or below expectations (i.e. expected inflation) : POSITIVE for equities;
> inflation above expectations (i.e. unexpected inflation) : NEGATIVE for equities;
Hope it helps,

 

[archived_user]

sunseeker wrote:
Don’t honestly see this as short / long term issue ?
Main driver to me is whether inflation is above or below the expectations :
> inflation at or below expectations (i.e. expected inflation) : POSITIVE for equities;
> inflation above expectations (i.e. unexpected inflation) : NEGATIVE for equities;
Hope it helps,

No…

 

[archived_user]

for equities it is also a matter of whether the “inflation” can be passed on to the customers. If inflation causes a price increase - and the firm can pass it on to your customers - then the price of their product goes up - Earnings should rise - Price per share should also rise.
However if that (passing on the price rise to your customers) is not feasible – higher input costs - which causes you to absorb the cost increases - and thus show up with losses.

 

[archived_user]

cpk123 wrote:
for equities it is also a matter of whether the “inflation” can be passed on to the customers. If inflation causes a price increase - and the firm can pass it on to your customers - then the price of their product goes up - Earnings should rise - Price per share should also rise.
However if that (passing on the price rise to your customers) is not feasible – higher input costs - which causes you to absorb the cost increases - and thus show up with losses.

The term “inflation” being thrown around here is very broad, and unlikely to raise input costs. In fact, it’s usually the opposite.
In any case, equity is the broadest asset class, and generalizations would be futile.

 

[archived_user]

MrSmart wrote:

sunseeker wrote:
Don’t honestly see this as short / long term issue ?
Main driver to me is whether inflation is above or below the expectations :
> inflation at or below expectations (i.e. expected inflation) : POSITIVE for equities;
> inflation above expectations (i.e. unexpected inflation) : NEGATIVE for equities;
Hope it helps,

No…

There’s clear exhibit which confirms the above,
BTW I agree with CPK123, what he says it’s reasonable it depends how much inflation can be transferred to customers in the selling price while this latter content was more a L2 topic;

 

[archived_user]

sunseeker wrote:
There’s clear exhibit which confirms the above,

Show me that exhibit please.

sunseeker wrote: BTW I agree with CPK123, what he says it’s reasonable it depends how much inflation can be transferred to customers in the selling price while this latter content was more a L2 topic;

Again, what you’re saying is too broad. You have an imaginary selective company in your head and slapping the term inflation on to it.

 

[archived_user]

Book “VOLUME 3” Exhibit 18 “inflation / deflation effects on asset classes” seems pretty straightforward.