It’s the theme of my newest Bloomberg column. Here’s a brief excerpt:
Think about the latest 8-9% inflation spurt in the US. The straightforward truth is that M2 – a broad measure of the cash provide – has elevated by round 40% between February 2020 and February 2022. Within the amount concept method, this could be a purpose to count on additional inflation, and naturally that’s precisely what occurred.
The amount concept has by no means been precise, one of many causes being that the speed (or price of turnover) of cash also can fluctuate. At first of the pandemic, spending on many providers was troublesome, even harmful, and so financial savings exploded. But these days didn’t final, and when the brand new enhance in cash provide was unleashed on the US economic system, there have been inflationary penalties.
I believe there are numerous indeterminacies in macro, however letting M2 rise at such a price just isn’t one among them!