First, a minor correction - adjusting returns for inflation shouldn't be done by subtracting inflation rate from returns (e.g., 8% - 3% = 5%), but rather by division (e.g., 1.08/1.03 = 1.0485, so 4.85%.

Second, historically, high inflation has indeed reduced stock returns, but the market still has a positive inflation-adjusted return even when inflation goes above 5% or 10%.