{"id":18520,"date":"2023-03-14T23:56:00","date_gmt":"2023-03-14T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=18520"},"modified":"2025-07-03T07:11:10","modified_gmt":"2025-07-02T23:11:10","slug":"stock-prices-vs-inflation","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/","title":{"rendered":"Why do stock prices automatically rise with inflation?"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#The_origin_of_this_article\" >The origin of this article<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#Stocks_are_the_best_bet_for_long-term_investors\" >Stocks are the best bet for long-term investors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#The_root_cause\" >The root cause<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#Currency_devaluation\" >Currency devaluation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#All_goods_price_go_up\" >All goods price go up<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#Illustrate_with_Valuation_Example\" >Illustrate with Valuation Example<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#Related_content_in_my_book\" >Related content in my book<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#Proof_of_official_data\" >Proof of official data<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_origin_of_this_article\"><\/span>The origin of this article<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A friend wrote to me, the original text is: &#8220;I read your blog article and mentioned that &#8220;stock prices will automatically rise with inflation&#8221;. After thinking about it for a long time, I still don&#8217;t understand it. Could you please give me a practical example to help me out? Let me explain.<\/p>\n\n\n\n<p>I think this question deserves a blog post.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Stocks_are_the_best_bet_for_long-term_investors\"><\/span>Stocks are the best bet for long-term investors<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>First of all, in the long run, a long-term investor will definitely face inflation many times in his investment career. This is an economic reality that no one can escape and must face.<\/p>\n\n\n\n<p>Compared with real estate, gold, bonds and other assets, this is why stocks are the best asset choice for long-term investment. Buffett has emphasized many times and I will not repeat them.<\/p>\n\n\n\n<p>According to the statistics of the author of &#8220;<a href=\"https:\/\/www.amazon.com\/Where-Money-Value-Investing-Digital-ebook\/dp\/B09JPKVQV7\" target=\"_blank\" rel=\"noreferrer noopener\">Where the Money I<\/a>s&#8221; book, in the past fifty years, data from the United States shows:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The annualized return on investment of stocks is 9%, please refer to my blog article &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/09\/11\/sp-500-index-querier\/\">Querier to Annualized rate of return for S&amp;P 500 Index<\/a>&#8220;<\/li>\n\n\n\n<li>The annualized rate of return on investment in real estate is 4%<\/li>\n\n\n\n<li>The annualized rate of return on investment for a three-year certificate of deposit is 1%<\/li>\n\n\n\n<li>The annualized rate of return on checking accounts is 0.04%<\/li>\n<\/ul>\n\n\n\n<p>For the annualized rate of return on investment, please refer to my blog articles &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/07\/25\/stock-worth-holding-forever\/\" target=\"_blank\" rel=\"noreferrer noopener\">Investors should care annualized rate of return (IRR), How to calculate?<\/a>&#8221; and &#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/08\/30\/irr-calculator\/\" target=\"_blank\" rel=\"noreferrer noopener\">IRR Calculator<\/a>&#8220;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_root_cause\"><\/span>The root cause<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Currency_devaluation\"><\/span>Currency devaluation<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The most important factor is that after inflation, the money becomes smaller. In Taiwan, 10 eggs will cost NT$35 in 2022, and NT$70 in 2023 will not be available in Taiwan. That is to say, the money that consumers use to buy eggs has depreciated by 50%. In order to buy the same number of eggs, consumers must pay twice as much.<\/p>\n\n\n\n<p>For manufacturers, the number of eggs sold this year is roughly the same as last year, but the money on the account is doubled!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"All_goods_price_go_up\"><\/span>All goods price go up<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In the case of inflation, all prices will rise, and the prices of products and services of listed companies will of course also increase according to market conditions. Especially those companies with the power to increase prices, that is, companies with a wide moat, will not lose customers because of price increases.<\/p>\n\n\n\n<p>When the prices of products and services of listed companies are raised, the revenue will increase according to the ratio of the price increase, and of course the net profit will also increase. The increase in revenue and net profit will naturally push up the stock price; because the valuation of the stock Will automatically increase with the increase in revenue and profit (see the description of the example below).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Illustrate_with_Valuation_Example\"><\/span>Illustrate with Valuation Example<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>For a listed company or a certain industry, in the stock market, the valuation of its stock price by the capital market is usually a stable value. Although it will fluctuate with many factors and market conditions, it will not go up and down.<\/p>\n\n\n\n<p>Consider, among the following two most common and simplest ways of valuing stock prices:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Price-to-earnings ratio (P\/E): Under the condition of being a constant, E (that is, net profit) increases, and P (stock price) of course rises proportionally.<\/li>\n\n\n\n<li>Stock price-to-sales ratio (P\/S): If it remains a constant, S (that is, revenue) increases, and P (stock price) of course rises proportionally.<\/li>\n<\/ul>\n\n\n\n<p>It&#8217;s all simple mathematics, there&#8217;s nothing strange about it, and there&#8217;s actually no hard knowledge at all. Hope it&#8217;s easy for you to understand.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_content_in_my_book\"><\/span>Related content in my book<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In my book &#8220;<a href=\"https:\/\/www.books.com.tw\/products\/0010889106?sloc=main\" target=\"_blank\" rel=\"noreferrer noopener\">The Rules of Super Growth Stocks Investing<\/a>&#8220;:<\/p>\n\n\n\n<p>In subsections 1-2, from pages 27 to 35, there are 3 reasons for the rise in stock prices: the first of which is 1. The continuous growth of corporate earnings<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Proof_of_official_data\"><\/span>Proof of official data<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The following is the chart of the U.S. Department of Labor\u2019s adjusted U.S. inflation rate and the S&amp;P 500 index representing the U.S. stock market from 1994 to 2014.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"640\" height=\"360\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/03\/sp500-vs-inflation.png\" alt=\"sp500 vs inflation\" class=\"wp-image-18525\" srcset=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/03\/sp500-vs-inflation.png 640w, https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/03\/sp500-vs-inflation-300x169.png 300w\" sizes=\"auto, (max-width: 709px) 85vw, (max-width: 909px) 67vw, (max-width: 984px) 61vw, (max-width: 1362px) 45vw, 600px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/09\/19\/us-inflation-rate-querier\/\" target=\"_blank\" rel=\"noreferrer noopener\">Querier of US Inflation Rate<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2024\/08\/13\/market-rise-after-rate-cut\/\" target=\"_blank\" rel=\"noreferrer noopener\">Will Fed rate cut gurantee stock market rise?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/07\/02\/reciprocal-tariff-and-forex\/\">Reciprocal tariff and forex impact to investors<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/12\/27\/inflation-reduction-act\/\">The impact of the Inflation Reduction Act on US stocks<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/12\/inflation-proof-investments\/\">Inflation-proof investments<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/09\/29\/inflation-and-rate\/\">Tax, inflation and rate are the top three serious killers to investors<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/14\/stock-prices-vs-inflation\/\">Why do stock prices automatically rise with inflation?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/07\/04\/how-investors-should-look-at-economic-trends-and-forecasts\/\">How investors should look at economic trends and forecasts?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/11\/27\/currency-exchange-risk\/\">Should investors care about currency exchange risk when investing in US stocks?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/04\/recession-ahead\/\">Amid global recession, investor&#8217;s hard days still ahead<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/11\/04\/commercial-oriented-firms\/\">Commercial-oriented firms perform better in recessions<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/09\/11\/sp-500-index-querier\/\">Querier to Annualized rate of return for S&amp;P 500 Index<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/09\/05\/compound-interest\/\">Simple and compound interest calculator<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/08\/30\/irr-calculator\/\" target=\"_blank\" rel=\"noreferrer noopener\">IRR Calculator<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/06\/21\/why-long-term-investment\/\">Why long-term investment is better?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/07\/25\/stock-worth-holding-forever\/\" target=\"_blank\" rel=\"noreferrer noopener\">Investors should care annualized rate of return (IRR), How to calculate?<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>When inflation, prices raised, the revenue will increase according to the ratio of the price increase, and of course the net profit will also increase. The increase in revenue and net profit will naturally push up the stock price; because the valuation of the stock Will automatically increase with the increase in revenue and profit <\/p>\n","protected":false},"author":1,"featured_media":18526,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[405,404,35,346,483,347,11],"tags":[],"class_list":["post-18520","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-inflation","category-economics","category-long-term-investing","category-pe-ratio","category-price-power","category-ps-ratio","category-buffett"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18520","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=18520"}],"version-history":[{"count":21,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18520\/revisions"}],"predecessor-version":[{"id":37140,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18520\/revisions\/37140"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/18526"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=18520"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=18520"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=18520"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}