Inflation
A general rise in prices — the currency loses value, affecting companies' costs, consumption, rates, and stock prices broadly.
In plain terms
Inflation is "prices rising in general." If instant noodles that cost $1.00 last year cost $1.10 this year, the same money buys less. The money has lost value.
The most-watched gauge is CPI (the Consumer Price Index). It bundles the prices of the goods and services in a shopping basket and shows how much they rose versus a year ago.
What it tells you
Inflation is one of the biggest forces affecting stock prices from outside the individual company. When prices rise fast, the central bank (the Fed in the US) tries to rein it in by raising rates, and rising rates change the mood across stocks.
For a company, costs rise as raw materials and wages climb. A company that can pass that cost onto its product price (one with strong pricing power) holds up, while one that cannot sees its margin cut.
Formula
inflation rate = (this year's price index − last year's) ÷ last year's × 100 (headline gauge: the Consumer Price Index, CPI)
What high or low means
Mild inflation (around 2% a year) is seen as the normal state of a working economy. Too high and consumption and investment shrink; negative (deflation) can signal a recession.
In a rising-price phase, companies with strong pricing power (high gross margin) and little debt tend to be relatively less shaken.
Inflation is an "overall average," so the impact on each company varies. Even in the same inflationary period, a manufacturer that uses lots of raw materials and asset-light software take completely different hits.
Headline CPI mixes in volatile energy and food, so to see the trend, look at core CPI with those stripped out.
Inflation is a macro environment, so its direction is hard to call. This term is background for reading results and news. (※ Our screen handles individual companies' SEC-filed financials and does not provide macro indicators like CPI or rates themselves.)
In the 1970s, two oil shocks left the US with high inflation that topped 10% a year. Only after the Fed belatedly pushed the policy rate toward 20% was it tamed — at the steep cost of a deep recession.
In 2021–2022 too, post-COVID prices spiked to a roughly 40-year high, and as the Fed raised rates fast the market was sharply shaken that year. History has repeatedly shown that once inflation is let loose, taming it brings great pain.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Inflation and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.