Learn the stock market › The economy and the stock market › Lesson 5 of 6
How does inflation affect stocks?
Why inflation matters
A company can often raise its prices when everything else gets more expensive, so its profits can grow with inflation. That sets a stock apart from cash or a savings account with no interest. But high inflation also tends to bring higher interest rates, which make future profits worth less today and loans more expensive. How rates reach stocks is in Interest rates and the stock market.
What counts for a saver is the return after inflation. If stocks rise 5% in a year when prices rise 7%, your money buys less than before.
Decade by decade
| Decade | Inflation per year | S&P 500 per year | After inflation |
|---|---|---|---|
| 1930–1939 | −2.0% | −5.3% | −3.3% |
| 1940–1949 | +5.4% | +3.0% | −2.2% |
| 1950–1959 | +2.2% | +13.6% | +11.1% |
| 1960–1969 | +2.5% | +4.4% | +1.8% |
| 1970–1979 | +7.4% | +1.6% | −5.4% |
| 1980–1989 | +5.1% | +12.6% | +7.1% |
| 1990–1999 | +2.9% | +15.3% | +12.0% |
| 2000–2009 | +2.5% | −2.7% | −5.1% |
| 2010–2019 | +1.8% | +11.2% | +9.3% |
| 2020–2025 | +3.9% | +13.3% | +9.0% |
Inflation is the rise in the US Consumer Price Index from December to December. The S&P 500 is measured the same way, from the last close of December, and excludes dividends. With dividends every row would be higher; by how much is in the study of the stock market's average return.
The weakest after inflation was the 1970s: prices rose 7.4% a year and the index +1.6%, which made −5.4% a year after inflation.
High inflation, year by year
We split the years 1928–2025 by inflation. The line at 5% is our choice.
- 19 years with inflation of at least 5%: the index beat inflation 6 times. After inflation it averaged −8.8% a year.
- 79 other years: the index beat inflation 52 times, and after inflation it averaged +6.3% a year.
The latest was 2022, when US prices rose 6.5% and the S&P 500 went −19.4%. That year is in The 2022 rate shock. With dividends the index would have beaten inflation at least as often. What inflation is and how it is measured is in What is inflation?.
Test yourself
Stocks rise 4% in a year and inflation is 6%. What happened to their buying power?
Source
- U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U), US city average, not seasonally adjusted, read Nov 5, 2026.