Low inflation can be a positive for equities given that there are prospects for economic growth free of central bank interference. Inflation rates above three percent can be negative though because it increases the likelihood that the central bank will restrict economic growth. Declining inflation or deflation is also problematic because this usually results in declining economic growth and asset prices. The firms most affected are those that are highly levered. They would face declining profits yet would still be obligated to pay back the same amount in interest and principal. | 
