Why is inflation bad for stocks?

Inflation is generally considered bad for stocks because it reduces the purchasing power of money, which can lead to lower corporate profits and stock prices. When the prices of goods and services increase, companies may have to pay more for raw materials and labor, cutting into their profits. In addition, higher inflation may cause the central bank to raise interest rates, which can reduce consumer spending and slow economic growth. This can negatively impact companies’ earnings and ultimately lower their stock prices. As a result, investors often view inflation as a risk to their stock investments and may adjust their portfolios accordingly.