Stock bears have often warned that cooling inflation poses risks to corporate profits, but a growing number of Wall Street strategists have countered that falling commodity prices are unlikely to weigh on companies and their stock valuations.
Falling inflation is a potential hurdle for businesses if they can no longer pass on input costs to consumers.
Morgan Stanley analyst Mike Wilson has been sounding similar warnings.
But Deutsche Bank strategists don’t see much cause for alarm.
Binky Chadha, a strategist at the bank, said the correlation between earnings growth, or margins, and inflation has historically been close to zero, including during periods of inflation in the 1980s and earlier.
He sees margins peaking in mid-2021 as inflation begins to climb, before falling for six quarters before bottoming out late last year.
Both profit margins and real growth have picked up over the past two quarters despite moderating inflation.
