We won't see HYPERINFLATION in AMERICA
- Ishfaaq Peerally
- Mar 24, 2021
- 2 min read
In 2020, the M2 Money Supply of the United States increased by 25%. Why don't we see higher inflation yet?
šø šššš© ššššš©š”š® ššØ šš£šš”šš©šš¤š£? Is it an increase in money supply or an increase in prices? Actually, there are different types of inflation:
1. Monetary inflation - something we're already seeing with the Federal Reserve System printing money through Quantitative Easing (QE)
2. Asset Price Inflation - Another type of inflation we're seeing with increased in stock prices $SPX500 , bond and gold $GOLD prices in a recession. With the Fed printing money by buying bonds, it forces the price of other assets to go up as investors choose these assets over the low yield bonds.
Monetary and Asset Price Inflation affects mostly people who own financial assets.
3. CPI Inflation (Consumer Price Index Inflation) - This is increase in prices of goods
4. Core Inflation - same as CPI inflation but adjusting for changes in oil $OIL prices
š° š¾šš šš£šš”šš©šš¤š£ ššØ š©šš š¢š¤šØš© š¦šŖš¤š©šš š¤š£š šš£š šš© ššØ š¦šŖšš©š š”š¤š¬ š§šššš© š£š¤š¬. There are several reasons for this, such as low oil prices, the pandemic and recession. With low economic activities, people are not spending much money, hence, low inflation.
Will a return to normal economic activities cause higher inflation? Yes. Even the Fed may cause šššššš§ šš£šš”šš©šš¤š£ if they want to force interest rates to remain low.
ā ļø But š¬šš”š” š¬š šØšš šš®š„šš§šš£šš”šš©šš¤š£ šš£ š¼š¢šš§ššš? šš¤. Hyperinflation means a 50% increase in prices in a month. This is very unlikely to happen in America with the US Dollar still the reserve currency of the world and almost all other countries heavily indebted (much of which denominated in US Dollars) and QE in much of the developed world. The demand for US Dollar is still here.
We will certainly see higher inflation in the US but hyperinflation is very unlikely.
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