Insights

CHARTS  |  APRIL 2018
Moderately higher inflation shouldn’t unsettle markets
Our chart shows S&P 500 returns under various inflation environments, and indicates that moderately increasing inflation is not typically a drag on equities.

Earlier in the year, the threat of higher inflation stoked fears of rapidly rising U.S. interest rates, contributing to the first market correction since 2016. But inflation in the U.S. has been relatively low for years, so some acceleration should be welcome and March's 2.4% annualized rate is far from levels that typically drag on equities. Since 1946, years with inflation between 2% and 3% have averaged double digit returns. And the S&P 500 has even had above-average gains in the majority of years with 3% to 4% inflation. Of course, inflation is only one consideration and future returns may vary, but investors should take comfort that, on its own, a moderate increase is not typically negative for equities. For Canadian investors, fluctuations in the U.S./Canadian dollar exchange rate will affect Canadian dollar returns from U.S. stocks.