Inflation Risk exposure reflects a stock's sensitivity to unexpected changes in the inflation rate. Unexpected increases in the inflation rate put a downward pressure on stock prices, so most stocks have a negative exposure to Inflation Risk. Consumer demand for luxuries declines when real income is eroded by inflation. Thus, retailers, eating places, hotels, resorts, and other "luxuries" are harmed by inflation, and their stocks therefore tend to be more sensitive to inflation surprises and, as a result, have a more negative exposure to Inflation Risk. Conversely, providers of necessary goods and services (agricultural products, tire and rubber goods, etc.) are relatively less harmed by inflation surprises, and their stocks have a smaller (less negative) exposure. A few stocks attract investors in times of inflation surprise and have a positive Inflation Risk exposure.

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