I've come across this in the beginning of the book "The Intelligent Investor", by Benjamin Graham:
How well did Graham’s forecast pan out? At first blush, it seems, very well: From the beginning of 1972 through the end of 1981, stocks earned an annual average return of 6.5%. (Graham did not specify the time period for his forecast, but it’s plausible to assume that he was thinking of a 10- year time horizon.) However, inflation raged at 8.6% annually over this period, eating up the entire gain that stocks produced. In this section of his chapter, Graham is summarizing what is known as the “Gordon equation,” which essentially holds that the stock market’s future return is the sum of the current dividend yield plus expected earnings growth. With a dividend yield of just under 2% in early 2003, and long-term earnings growth of around 2%, plus inflation at a bit over 2%, a future average annual return of roughly 6% is plausible. (See the commentary on Chapter 3.)
It looks like in the first bold sentence, inflation is taking from the stock's returns, but in the second it's being added!
Could you help me make sense of this?
Thank you for taking the time to read so far :)