The Intelligent Investor - The Definitive Book On Value Investing

How Well Do Stocks Hedge Against Inflation?

-10 -20 -30 -40 -50

60 50 40 30 20 10 0

Total return on stocks and rate of inflation (%)

InflationReturn on stocks

FIGURE 2-1 This graph shows inflation and stock returns for each year between 1

926 and 2002—arrayed not in chronological order but from

the lowest annual inflation rates to the highest. When inflation is highly negative (see far left), stoc

ks do very poorly. When

infla-

tion is moderate, as it was in most years during this period, stocks generally do well. B

ut when inflation heats up to very high lev-

els (see far right), stocks perform erratically, often losing at least 1

0%.

Source: Ibbotson Associates