How Inflation Can Destroy Shareholder Value

MicKensey Quarterly has detected that the country's low interest rate and high government spending has played a huge role in stabilizing economies during the global recession. However, they now have companies, investors and policymakers on the lookout for inflation to come roaring back.

http://www.forbes.com/2010/02/04/inflation-danger-risk-leadership-governance-mckinsey.html?boxes=Homepagechannels

At first glance the effects of inflation on a company's ability to create value might seem negligible. After all, as long as managers can pass increased costs on to the customer, they can keep inflation from eroding shareholder value. Most managers believe that to achieve this goal, they need only ensure that earnings grow at the rate of inflation.

Yet a closer analysis reveals that to fend off inflation's value-destroying effects, earnings must grow much faster than inflation.For example in the mid 1970s to 1980s, U.S. companies managed to increase their earnings per share at a rate roughly equal to inflation around 10%. But according to their analysis, they would actually have to increase their earnings growth by around 20%.

We learned that the two most important macro variables are unemployment and inflation rate. This article talks about how inflation affects shareholder values and not customers. As I read this article I was confused because we learned that unemployment was the inverse of inflation, which means that people who are heavily impacted by high unemployment rates are not worried about inflation. Here it says that in order to prevent inflation, earnings must exceed inflation. This article was a little tricky to understand and connect to what I know about inflation and employment. I need some help guys.