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Something will cause inflation to go up this year, but it’s not oil
The consensus reaction to the jump in oil prices following President Trump’s attack on Iranon February 28 was that this would inevitably mean inflation. Steve Hanke and I respondedto this common fallacy by pointing out that oil and other commodity prices are relativeprices, while inflation requires a rise in the overall level of prices, which in turn requires priorrapid growth of the broad money supply. Inflation may rise in 2026, but if so, it will be due toexcess money growth, not merely a rise in the price of oil. Read the full article on Fortune →
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Monetary policy is not about interest rates, it’s about the money supply
A common view is that monetary policy is all about interest rates: higher rates for a tighterpolicy, lower rates for an easier policy. But this is at best superficial. Interest rates arethemselves subject to the rate of inflation, which depends on money growth over thepreceding two years or more. Illustrating with three different examples, Prof. Steve Hankeand I show that money growth is what really matters for inflation, and in turn for interest ratelevels in the particular countries. Read the full article on Fortune →