The Return Of Inflation
This week's news that the Fed will inflate at a much faster rate than previously announced seems to have actually been a statement of an already initiated policy. The Fed balance sheet expanded a full $163.7 billion to $2041.4 billion in the week to March 18, most of it in the form of mortgage backed securities and agency bonds on the asset side. This reverses some of the decline in the size of the balance sheet that we saw earlier in the year.
At the same time, money supply continues to expand rapidly. M2 expanded $39.8 billion to $8343.1 billion in the week to March 9, and is up 10.1% compared to 52 weeks earlier. Most of this increase came in the latest 26 weeks, with the annualized gain during that period being 17.8%. MZM meanwhile expanded $58.7 billion to $9505 billion during the same week. It is up 12% in the latest 52 weeks and up an annualized 17.8% in the latest 26 weeks.
This rapid increase in money supply is now finally starting to show up in prices, with the PPI being up 0.9% in the first two months of the year and the CPI 0.7%.
Different commodity price indexes show somewhat different increases, but they are all up several percent since their lows late last year. The Reuters Continuous Commodity index is for example up 11% from its November low, while the CRB spot index is up 4%. Oil, which briefly traded as low as $30 per barrel in December, closed at $52, an increase of more than 70%. Gold is up 32% from its October low of $720 per ounce.
The evidence is clear then that the significant monetary inflation is beginning to revive price inflation. And as monetary inflation continues, so will likely price inflation.