This post is by Jenna Ross from Visual Capitalist
How Disinflation Could Affect Company Financing
The macroeconomic environment is shifting. Since the second half of 2022, the pace of U.S. inflation has been dropping.
We explore how this disinflation may affect company financing in Part 2 of our Understanding Market Trends series from Citizens.
Disinflation vs. Deflation
The last time inflation climbed above 9% and then dropped was in the early 1980’s.
|Time Period||March 1980-July 1983||June 2022-April 2023*|
|Inflation at Start of Cycle||14.8%||9.1%|
|Inflation at End of Cycle||2.5%||4.9%|
* The June 2022-April 2023 cycle is ongoing. Source: Federal Reserve. Inflation is based on the Consumer Price Index.
A decrease in the rate of inflation is known as disinflation. It differs from deflation, which is a negative inflation rate like the U.S. experienced at the end of the Global Financial Crisis in 2009.
How might slowing inflation affect the amount of debt and equity available to companies?
Looking to History
There are many factors that influence capital markets, such as technological advances, monetary policy, and regulatory changes.
With this caveat in mind, history signals that both debt and equity issuance expand after a period of disinflation.
Companies issued low levels of stock during the ‘80s disinflation period, but issuance later rose nearly 300% in 1983.