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Inflation

The definition of M1 changed in May 2020 to include savings accounts. Since 2020 M2 has risen by about a third. That's a lot, but nothing like the number from the redefinition of M1.
 
Startz said:
The definition of M1 changed in May 2020 to include savings accounts. Since 2020 M2 has risen by about a third. That's a lot, but nothing like the number from the redefinition of M1.
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Thanks, I missed that. It looks like M1 probably isn't a good indicator for what I was trying to show.
 
Ohmigod, people are talking about M1 again? I can remember when it was the hot topic of conversation around 1982-1983.
 
A change in definition creating a dramatic jump on a graph tends to get discussion going.
 
I filled my car today, as it was down to 3 litres. 52l cost $145.

That's 40% more than only months ago, and includes a $0.25 c/l deduction by the government cutting tax.
 
Brainster said:
Ohmigod, people are talking about M1 again? I can remember when it was the hot topic of conversation around 1982-1983.
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Milton Freedman:

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. ...

Supply chain issues or other production issues can't produce inflation on their own, they just limit production. Inflation happens when money supplies increase and there is more money chasing a limited supply of goods.
 
lomiller said:
Milton Freedman:

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. ...
Click to expand...

Milton certainly said that. And it is certainly true in hyperinflations and in some long-run sense true more generally. But the connection is not so simple. Here's a graph of annual inflation and M2 growth.
inflation and growth.png


The correlation in the monthly data is -0.05.
 
Cross correlation would be more appropriate there is a delay between monetary changes and inflation. Even then, what you see may not really be indicative as inflation isn't really changing much because the Fed is actively targeting 2%, so changes in inflation over this period are going to be dominated by noise.
 
Startz said:
Milton certainly said that. And it is certainly true in hyperinflations and in some long-run sense true more generally. But the connection is not so simple. Here's a graph of annual inflation and M2 growth.
[qimg]https://www.econ.ucsb.edu/~startz/inflation and growth.png[/qimg]

The correlation in the monthly data is -0.05.
Click to expand...

Is M2 inclusive of M1? It looks like it isn't because I see the drop in M2 that corresponds with the rise in M1 due to reclassification.

So I feel like this would be more indicative if it was changed to a combined M1+M2 chart.
 
lomiller said:
Cross correlation would be more appropriate there is a delay between monetary changes and inflation. Even then, what you see may not really be indicative as inflation isn't really changing much because the Fed is actively targeting 2%, so changes in inflation over this period are going to be dominated by noise.
Click to expand...

I completely agree that a cross-correlation, or some kind of dynamic model, is more appropriate. As Milton used to say "long and variable lags."

I don't understand the argument about the Fed actively targeting 2%. I agree that's pretty much what they did, but if that breaks down the relation between money growth and inflation then it's pretty much saying that inflation is not due simply to money growth.
 
lomiller said:
Milton Freedman:

Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. ...

Supply chain issues or other production issues can't produce inflation on their own, they just limit production. Inflation happens when money supplies increase and there is more money chasing a limited supply of goods.
Click to expand...

If you want to blame it on Trump, go ahead, but there is a rather obvious reason for the insane bump in M1 in April 2020, and actually I do agree that the giveaway was excessive and inflationary.
 
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Brainster said:
If you want to blame it on Trump, go ahead, but there is a rather obvious reason for the insane bump in M1 in April 2020, and actually I do agree that the giveaway was excessive and inflationary.
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I think you missed it earlier, that the "Insane bump" was a reclassification, not an actual change in supply.
 
JoeMorgue said:
Yes the 1,200 dollars poor people got to survive is obviously the problem.
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The kneejerk assumption that inflation this time is caused by a glut of money (which is often the case) is searching for evidence to reach this conclusion.

It seems much more likely to me that there is simply a shortage of stuff, raw materials and finished goods of all sorts, because of the massive disruptions of the global supply chain caused by covid and further exasperated (to a lesser extent) by the current war in Ukraine.

I doubt there's any way to polish this turd of a situation. There simply isn't enough stuff to meet demand, so prices rise. We're probably going to be in this situation until covid is finally gone, plus for a bit after, so supply lines can re-establish themselves.
 
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Not that it matters...but the article is pretty clear it's not about mortgages. It's unsecured personal loans.

(Still a pretty big change.)
 
Startz said:
Not that it matters...but the article is pretty clear it's not about mortgages. It's unsecured personal loans.

(Still a pretty big change.)
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So it is!

That'll teach me not to read the article and just look at the headline!

:blush:
 
It's silly not to recognize a lot of money was pumped into the country during the COVID restrictions. So inflation following is a no brainer.

What irks me are people (latest poll somewhere) who think the Republicans can manage inflation better. That's bull ****. Sure, they can block some spending on things we all need like fixing the bridges and forgiving student loans. That's a drop in the bucket compared to the money both parties pump into the bottomless pit that is military spending.
 
Skeptic Ginger said:
It's silly not to recognize a lot of money was pumped into the country during the COVID restrictions. So inflation following is a no brainer.
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Nope.

As much or more money has been being pumped in since the GFC and inflation didn't move, and this bout of inflation is more about covid than monetary easing.

The inflationary aspect of QE has been hidden in real estate and shares, neither of which count towards inflation.

Skeptic Ginger said:
That's a drop in the bucket compared to the money both parties pump into the bottomless pit that is military spending.
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And that's only going to grow thanks to Mr V Putin.
 
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