Monday, June 12, 2006

High inflation and Stocks

Recent news of rising inflation has been flaming stocks today, however I ran across a good article from Marketwatch regarding how higher inflation doesn't have to be bad for stocks - MarketWatch.

From the article - "Investors who sell stocks when inflation rears its head are implicitly assuming that companies have no pricing power, and hence that their earnings growth rates don't change with inflation. But history shows that this is not the case, according to a study by Harvard economists John Campbell and Tuomo Vuolteenaho. They found that real (or inflation-adjusted) earnings growth, when measured over several-year periods, was relatively constant, and that nominal earnings growth fluctuated with inflation."

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