First, the good news: Aswath Damodaran notes that April was the first month since our current inflationary cycle when overall inflation slowed. “Excluding the especially volatile food and energy categories, economists have forecast that so-called core prices jumped 6 per cent in the 12 months ending in April, down from 6.4 per cent in March,” the New York University professor notes in “In Search of a Steady State: Inflation, Interest Rates, and Value.”

“I wrote my first Musing on Markets post in 2008, and inflation merited barely a mention until 2020, though it is an integral component of investing and valuation,” he says. “Since 2020, though, inflation has become a key story line.” While he sees some optimism for April and beyond, he also highlights bad news in consumer expectations. “Consumer expectations of inflation reached 5.40% in March 2022, hitting levels not seen since the early 1980s. While the market-implied expected inflation rate has also climbed to a ten-year high of 2.85%, it is clearly lower than the consumer survey expectation.”

Consumers may be overadjusting, Damordaran argues, or, conversely, market pricing may still be underadjusting. He notes the average inflation rate in the 2011-to-2020 decade was the lowest of the seven decades, so now an entire generation of financial experts has never done a valuation analysis in an inflationary period.