NerdWallet: How does inflation affect stocks? Here’s an explainer, and a basic guide to finding the stocks that fare better with inflation.

by | Oct 26, 2022 | Stock Market

This article is reprinted by permission from NerdWallet. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Inflation has been an unavoidable topic for investors in 2022, and it may not go away anytime soon. The Bureau of Labor Statistics’ latest Consumer Price Index, or CPI, numbers show a year-over-year inflation rate of 8.2% for the month of September — far higher than the Federal Reserve’s 2% target.

High inflation hurts investors in a couple of different ways, according to financial advisers. But it also affects some stocks less than others, and it can even be good for certain sectors of the market. Here’s what advisers say about investing during periods of high inflation, and how to find the best stocks for inflation.How does inflation affect stocks? Advisers say that excessive inflation has two major effects on investors: It reduces the value of their money over time, and it motivates the Federal Reserve to take counter-inflationary actions — like interest rate increases — which can push down stock and bond prices. “Let’s say you have money in the bank, sitting in cash, and let’s say inflation is at 3% to 6% — you’re losing 3% to 6% every single year,” says Angela Moore, an Orlando, Florida-based certified financial planner and the founder of Modern Money Education. “Let’s say inflation is at 6%, and your investments are only making 4% — you’re still losing money,” says Moore. Satoru Asato, a Bloomington, Minnesota-based certified financial planner with McNellis & Asato, says that “monetary policy is shifting from easy mode to tightening mode,” referring to the Federal Reserve’s five interest rate hikes so far this year. And in a rising interest rate envir …

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