Stock returns and inflation are related, influenced by supply and demand shocks. Supply shocks, like real output changes, lead to lower stock returns when inflation rises. On the other hand, demand shocks, often from monetary changes, result in higher stock returns with inflation. The connection between stock returns and inflation changes over time and varies between countries, depending on the impact of these shocks. This was shown through both theory and real-world data from the US, UK, Japan, and Germany.