Why Is Wall Street Not That Scared Of Inflation?

`About 65% of Americans now view their economy as poor, according to a poll by The Associated Press-NORC Center for Public Affairs Research. Almost all predictions indicate that inflation will continue to rise over the next months, this applies to fuel, electricity, food costs and every household purchase, but Wall Street seems not scared of rising prices.

Equities keep hitting new highs, reaping gains, recording highs and touching unprecedented earnings while bond yields remain remarkably stable in a narrow trading range of 1.25% to 1.75%. Reasons why stock investors are not scared of inflation cover 5 major areas as follows:

1. Higher inflation won’t last forever
Inflation will persist into 2022 and could even bump higher in the next few months. But the consensus is that price increases will stabilize at some point in 2022 as the supply chain issues resolve themselves and more Americans return to the job market, also easing supply constraints.

There is a prevalent belief that inflation will drop to the low 2s by late 2022 or early 2023, without an aggressive monetary policy response and supply chain problems should be resolved, turning the inflationary surge in the goods sector into a temporary deflationary drag.”

2. Rising prices are good for companies
Higher prices are painful for consumers, but can essentially be a good for corporations. If demand is strong, as it is right now, companies can raise prices and sales without hurting demand.

3. Corporate margins are rising
Higher inflation equates to higher costs for companies, but typical corporate expenses, like rent and wages, often rise at a slower rate than sales, which can result in higher corporate margins in an inflationary period.

4. Inflation on a two-year basis isn’t that high
Some economists also point out that the current rate of inflation isn’t terribly high when looking at it over a two-year horizon. The pandemic led to a massive decline in demand for goods and services as consumers stayed home in 2020.


5. The US economy is growing solidly
Real GDP growth is expected to jump to 5% in the fourth quarter, up from 2% in the third quarter, according to a forecast earlier this month from the Conference Board.