Ambrose Evans Pritchard is the last commentator to warn against the “hyperinflation hype”. He bases his argument on the famous St Louis Fed chart of the dramatic shrinkage of the money multiplier, which I have commented on before. As I pointed out at the time that chart does not show that the money supply is shrinking. Indeed it might be that all it proves is that the dramatic increase in the Fed’s reserves (M0)has not had any impact on the money supply – yet.
Well, here is the data proving the point I was making then:
(1) The two main measures of money supply (M1 and M2) have shown no evidence of shrinking in the past few months – so indeed the dramatic collapse in the money multiplier is the result of the doubling in M0 not being matched by an increase in M1…
(2) … but wait, M1 is increasing (as is M2), and at a very quick pace – just not at the 100%+ rate of M0. There are only ten months since record began in 1959 when annual growth in M1 has exceeded 15% – four of them in the last six months.
(3) The good news, and the reason why perhaps we have to be cautious about the hyperinflation hype, is that the relationship between M1 growth and inflation (CPI, Not Seasonally Adjusted excluding energy and food in the chart) appears pretty weak.