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Why Inflation, Which Recently Ticked Up, Will Likely Decline Soon

If you were wondering why inflation has ticked up slightly in the last few months, after months of slow but steady decline, you might want to turn to economist Milton Friedman, who years ago explained the root cause of inflation.
“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.”
A look at the M2 money supply over the past five years demonstrates Friedman’s cause-and-effect relationship.

The money supply had been gradually increasing for years, which it needs to do because of the growth in the population. But beginning in February 2020, with the onset of the pandemic, the money supply exploded for about four months. It continued to grow rapidly from May 2020 until March 2022, albeit as a slightly slower rate.
Beginning in April 2022, it leveled out for about four months and then began a gradual decline until April 2023, whereupon it increased slightly until last August, and then started to slowly decline again.
So, how do the inflation numbers correspond to the money supply? [Click here to see the table.]

First, inflation is a lagging result. When an economy has gone for years with little to no inflation, it can take several months for inflationary pressures to kick in. Inflation began its upward march in February of 2021, steadily climbing until it peaked in June 2022 at 9.1 percent—about three months after the money-supply peak.
As the money supply steadily declined—much faster than would be good under normal conditions—so did the monthly inflation rate. That is, until June of this year.
So the money supply, for whatever reason, took a slight step up in April, and inflation reared its ugly head again in July, with an even bigger increase in August. September inflation matched August.
Since the money supply began to decline slightly again in August, there’s a good chance we will also see inflation begin to decline again soon.
Not all economists agree with Friedman’s maxim that “Inflation is always and everywhere a monetary phenomenon.” But in this instance, it seems to hold up pretty well.