Inflation and the Markets

According to monthly data from Ibbotson Associates, all of the stock market’s inflation-adjusted gains have come when monthly inflation is below 3.5%.
From 1926 through 2007, there were 984 months. Of those 984 months, 436 months showed an annualized inflation increase of over 3.5%, while the other 548 came in less than 3.5%.
The combined increase of the 436 months with inflation greater than 3.5% is -1.25%. That’s over 36 years worth of data and it’s given investors an inflation-adjusted loss. However, the combined total of the 548 months with inflation under 3.5% is 27,957%. That’s quite a difference. Annualized, that works out to 13.14%.

Posted by on August 5th, 2008 at 2:24 pm


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