Despite recent experiences in the United States and the Eurozone, it might be advisable to always keep an eye on the money supply.

Deutsche AWM
By August 29, 2018 14:03

Despite recent experiences in the United States and the Eurozone, it might be advisable to always keep an eye on the money supply.

CIO View

Among central banks and market observers alike, monetarism seems to have gone out of fashion. That seems a touch premature. Take a broader look at the recent inflation experience in different parts of the world, and the link between money-supply growth and inflation is (still) there. This will come as no surprise to market veterans. In the 1980s and 1990s, the development of various measures of money supply still attracted a great deal of attention, similar to today's employment and unemployment figures. Since then, monetarism has receded as an economic doctrine; those who nowadays look at the growth of the money supply and emphasize its relevance risk being mocked. This might partly reflect the developments in many parts of the developed world since the financial crisis of 2008. Despite an almost doubling of the money supply within ten years, the United States and the Eurozone continue to have remarkably low inflation rates. Looked at differently, however, the same data can tell a very different and quite monetarist story, as our "Chart of the Week" shows. We compare the annualized growth of the money supply M2 in the period 2007 to 2017 and the consumer price index (CPI) 2017 for several countries. It shows that money-supply growth remains an important determinant of inflation. This is especially so for countries with a particularly strong propensity for fast money multiplication, including emerging economies such as Argentina, Egypt, Ukraine and Turkey. These have seen especially rapid increases in money supply. Unsurprisingly to a monetarist, the results have been double-digit inflation rates. 

Deutsche AWM
By August 29, 2018 14:03

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