Angie · learn
Inflation
The rate at which money loses purchasing power. It raises interest rates, which raises discount rates, which lowers every valuation at once.
Updated 2026-09-05
Inflation is the rate at which money loses purchasing power. Moderate and steady is normal; rapid or unpredictable is corrosive, because it makes every long-term contract a gamble.
Its transmission into share prices runs through rates. Higher inflation pushes central banks to raise rates, which raises the risk-free rate rate, which raises every wacc on the board, which lowers every valuation simultaneously. Long-duration assets, meaning companies whose value sits mostly in distant cash flows, fall hardest, which is the mechanism behind growth stocks derating in a tightening cycle.
See also
- Risk-free rate — The 10-year Treasury yield, standing in for the return available with essentially no risk. Every other rate in the model is built on top of it.
- Monetary policy — The central bank setting the price of money to manage inflation and employment. Its main transmission into markets is the discount rate.
- WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
