The Investing for Beginners Podcast - Your Path to Financial Freedom

Listener Q&A: Should You Adjust Your WACC for Inflation?

Mar 16, 2026
They dig into how inflation and deflation really affect company value and why central bank actions matter for everyday investors. They explain pricing power and how businesses protect margins during rising costs. They walk through where to include inflation in WACC and DCF models and warn about double-counting when estimating long-term growth.
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INSIGHT

Why The Fed Cuts Rates Despite Future Inflation

  • The Fed's dual mandate forces it to balance inflation (target ~2–3%) and economic growth, so its interventions (like 2020 rate cuts) trade short-term stability for later inflation risk.
  • Andrew explains cutting rates to near zero in 2020 injected liquidity to prevent a deflationary spiral, which later contributed to the high inflation we feel now.
INSIGHT

Why Deflation Harms The Economy

  • Deflation makes money more valuable but discourages spending, which can trigger cascading business failures and job losses, deepening economic collapse.
  • Andrew contrasts deflationary expectations (wait for lower prices) with firms facing fixed production costs, explaining why deflation is dangerous.
ADVICE

Buy Capital Efficient Businesses With Pricing Power

  • Prefer capital-efficient businesses with pricing power to survive inflation because they can raise prices and absorb rising input costs without losing profitability.
  • Andrew uses See's Candy and insurance firms as examples that sustain margins during inflation.
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