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Inflation and stock prices
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mark_cycling00
Posts: 761 Forumite

Hi, was just discussing this with neighbour; seems a logic assumption but I bet it's more complicated ....
Over the last 2 years of inflation prices have risen by about 20%. Is it reasonable to assume that over an period of time that this 20% would be reflected in stock valuations.
I know there are lots of factors involved and right now dividend stocks may be lower etc. But over the long term is there a 20% increase that has to happen or does inflation destroy value and future prospects?
Any thoughts? Thanks
Over the last 2 years of inflation prices have risen by about 20%. Is it reasonable to assume that over an period of time that this 20% would be reflected in stock valuations.
I know there are lots of factors involved and right now dividend stocks may be lower etc. But over the long term is there a 20% increase that has to happen or does inflation destroy value and future prospects?
Any thoughts? Thanks
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Comments
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mark_cycling00 said:
Over the last 2 years of inflation prices have risen by about 20%. Is it reasonable to assume that over an period of time that this 20% would be reflected in stock valuations.1 -
Inflation will affect the breakeven price of the goods and services sold by the business, as will an increased cost of borrowing if the company has debt. If they wish to maintain their profit margin, they would need to adjust the sale price of the goods and services accordingly. However, this may impact their volume of sales. If their customers are willing to accept an increase in the price they pay, then fundamentally the real earnings of the company will not be impacted, so all other things being equal, its value will rise with inflation. However, in reality, customers are likely to change their behaviour in response to prices rising, either by reducing consumption or switching product if there is a competitor who can offer a better deal.
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mark_cycling00 said:Hi, was just discussing this with neighbour; seems a logic assumption but I bet it's more complicated ....
Over the last 2 years of inflation prices have risen by about 20%. Is it reasonable to assume that over an period of time that this 20% would be reflected in stock valuations.
I know there are lots of factors involved and right now dividend stocks may be lower etc. But over the long term is there a 20% increase that has to happen or does inflation destroy value and future prospects?
Any thoughts? Thanks
1 -
mark_cycling00 said:Over the last 2 years of inflation prices have risen by about 20%. Is it reasonable to assume that over an period of time that this 20% would be reflected in stock valuations.Remember the saying: if it looks too good to be true it almost certainly is.1
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Thanks all.
It's a shame because effectively it seems that pensions won't have gone up enough to cover the effects of inflation.
Apparently Unilever passed on all the cost increases to their customers but the share price has dropped. So guess their margin is now slightly less0 -
mark_cycling00 said:
Apparently Unilever passed on all the cost increases to their customers but the share price has dropped. So guess their margin is now slightly less
Higher inflation drives customers to own brands which are cheaper.
There is yet to be signs that Unilever will turn this trend around so the share price would be expected to be lower.
Share prices tend to rise at times of growth for the business. Times of high interest are typically low growth.1 -
mark_cycling00 said:
It's a shame because effectively it seems that pensions won't have gone up enough to cover the effects of inflation.
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mark_cycling00 said:Thanks all.
It's a shame because effectively it seems that pensions won't have gone up enough to cover the effects of inflation.
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From what I've seen, that 20% inflation doesn't always translate to a straight-up 20% increase in stock values. A lot depends on how companies handle rising costs and what the overall economic vibe is like. Some businesses manage to pass on the costs and do well, but others, not so much.I started following a stock market live schedule to get a better feel for how things like inflation impact the market day-to-day. Really puts into perspective how dynamic the market is and how many different factors play into stock prices.0
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