Inflation Can Be Equities Killer

Simple as it gets from economists at BNP Paribas today (see the chart below):

Chart 7 refers to research by the IMF and our own work. We looked into the response of equity markets to rising inflation rates from 1965. This study suggests equity returns become negative when inflation exceeds 6%. The equity market’s optimal inflation rate is 3%. Higher or lower inflation rates are counterproductive.

Click on chart to enlarge, courtesy of BNP Paribas.