Price inflation and stock returns

This letter demonstrates that price inflation and stock returns display differing relationships depending on the measure of inflation used. The regularity that price inflation and stock returns are negatively related in post-World War II depends on the model specification.

► In a world of low inflation, no link between inflation and stock returns. ► Link between inflation and stock returns depends on the measure of inflation. ► Link between the dividend yield and the CPI exists only for 1966-1983.