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The authors investigate the cross-sectional relation between industry-sorted stock returns and expected inflation, and they find that this relation is linked to cyclical movements in industry output. Stock returns of noncyclical industries tend to covary positively with expected inflation, while the reverse holds for cyclical industries. From a theoretical perspective, the authors describe a model that captures both (1) the cross-sectional variation in these relations across industries and (2) the negative and positive relation between stock returns and inflation at short and long horizons, respectively. The model is developed in an economic environment in which the spirit of the Fisher model is preserved.