Do Analysts Incorporate Inflation in Their Earnings Forecasts?

We examine whether financial analysts fully incorporate expected inflation in their earnings forecasts for individual stocks. We find that expected inflation proxies such as lagged inflation and forecasts from the Michigan Survey of Consumers predict future earnings growth of a portfolio long in high earnings growth firms and short in low earnings growth firms, but analysts do not fully adjust for

this relation. Analysts' earnings forecast errors can be predicted using these expected

inflation proxies. We conclude that analysts' earnings forecasts do not completely incorporate the earnings information in inflation.