The inflation data for September 2021 was released last week. The news? Well, prices continue to rise. September’s observed price increase was 5.4% (from a year earlier). Debate continues as to whether inflation will be “transitory” or if it will be “here to stay” for awhile. You may wonder, “what is the historical relationship among inflation, GDP growth (i.e. how fast our economy grows), and stock returns (i.e. S&P 500)?” Looking at data from 1947 – 2020, some key takeaways are:

  • High inflation has historically been correlated to lower GDP growth and weaker market returns
  • Low inflation has historically been correlated with higher GDP growth and stronger market returns

Past performance is no guarantee of future results; however, the data is interesting to ponder in this period of higher than normal inflation that we are currently experiencing. Historically, stocks tend to outperform inflation over the long term and can deliver “real” returns (net of inflation). Please reach out to us if you are concerned about your portfolio and how inflation may impact you.

Ultimately, investors can benefit from a financial plan that helps them see past the headlines of today to make wealth creating decision for the long term.

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