Personal Finance

5 Ways Inflation Can Hurt Stocks | Smart Change: Personal Finance

While you might be able to reduce energy use a bit by turning down your thermostat, consolidating trips, and switching to energy-efficient lights, chances are you can’t offset all those higher costs. As a result, the massively higher energy costs you’re probably facing mean that you have to cut back elsewhere in order to afford to do things like heat your home, cook your food, and get to work.

People cutting back spending in one area of their life due to unavoidable inflation elsewhere reduces revenue for those companies associated with those less-immediately essential products. That can hurt the stocks associated with those types of companies.

No. 2: More aggressive cost-cutting actions

When companies are faced with higher costs, they start getting aggressive with their cost-cutting actions. That could include things like changing formulas to reduce input and processing costs, reducing staff to cut salary and benefit costs, or stretching out maintenance cycles to reduce downtimes.

Any person or company whose job depended on the old way of doing things is at risk of reduced or eliminated revenue (or salaries) from those cost cutting choices. There might be some winners if a company switches from one ingredient or supplier to another, but since the overall goal is cutting costs, it still represents an overall smaller pot of cash.

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