The correct answer to the question, “What does inflation mean to common stocks?” is: “Whatever inflation means to their earnings and dividends.”
Inflation is most bullish on common stocks when it follows a deep depression and is not generally expected. Rising demand for goods and services can be met by putting idle productive facilities to work. Labor is not yet anticipating further increases in living costs. And by the time more plant capacity is needed, risking construction costs haves underwritten the profit margins of existing facilities.
But when inflation persists long enough so that everyone is aware of it, and when the rate of inflation becomes high enough to be a political liability for whoever is in power in Washington, it is no longer automatically beneficial to corporate earnings and may become detrimental to them.
This is where America is now. Some companies may still benefit from inflation but more and more will be hurt as controls proliferate. Far from guaranteeing rising profits for all, whether strong or weak, ably or poorly managed, inflation has reached the stage where it presents a challenge only the best can meet. Selectivity seems likely to be much more important in the 1970s than in the 1960s, and it was not unimportant then.