Wednesday, May 14, 2008

Is Concern for Inflation Inflated?

The chart above (click to enlarge) shows the growth rates (from a year ago) for the monetary base and M1 money supply since 2005. M1 has been flat with zero growth for more than 2 years, and the growth in the monetary base has been declining and is now approaching 0% growth. Given these monetary data, is the concern about inflation inflated?


At 5/14/2008 11:52 AM, Blogger Jack Miller said...

The price of gold is down more than 15% from the peak. The ten year bond is also forecasting lower inflation. The FOMC is sterilizing its "facilities" lending and holding the monetary base down. Central bankers outside the USA are holding short rates up to target inflation. The dollar has turned on improving data from the states combined with weaker prospects for growth overseas.

Inflation is a late cycle phenomenon. The worst is over. No recession this year. Excess capacity will be cranked back into action in many an industry which will increase Q but hold down P. Real GDP will strengthen the next two quarters.

At 5/14/2008 12:34 PM, Anonymous Anonymous said...

We tried sooooo hard to sell it!! We DID!!
We DID!!!


At 5/14/2008 1:43 PM, Anonymous Anonymous said...

I don't think we need to worry about inflation because the economy is not over heating. If inflation were being fed by speculative bubbles it would be a problem we should try to solve artifically but adjusting interest rates for example. But if commodity proces are going up because of scarcity or the dollar is going down (finally) because of trade imbalances then those are natural market forces that will correct automatically.

At 5/15/2008 10:19 AM, Anonymous Anonymous said...

You should take a course on basic economics.

Its money supply vs the demand for money.

You state one half of the equation, the supply, what about money demand.?


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