Expert Commentary

ALL INflation as Nobody Expects Deflation

Price inflation expectations are the highest on record.

“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.”

So stated Milton Friedman, the famous, Nobel Prize-winning, monetarist economist whose work has influenced central bankers since the 1970s. This siren song sounds so appealing. After all, it would appear to make sense, if money is growing faster than economic output (goods and services) then there is too much money chasing too few goods and price inflation should ensue. The problem is, though, the facts do not back it up.

Examining U.S. Gross Domestic Product (GDP), M2 Money Stock and Consumer Price Index data, you will find many times when money was growing faster than GDP but was accompanied with slowing consumer price inflation. Occurrences just since the start of the 1980s include 1982, 1985 to 1986, 1990 to 1991, 2001 to 2002, 2007 to 2009, 2011 to 2015, and 2019 to present.

Why then are people thinking that this time will be different? Perhaps it’s because all those cited occurrences happened during Cycle wave V up in stocks and thus change is in the air, but the fact that U.S. M2 money is growing at an incredible 25% per annum (double that of the early 1980s) is undoubtedly the biggest reason. However, the Eurozone M3 annual growth rate is 11%, still below its 2007 high.

The chart below shows that U.S. price inflation expectations are at the highest level since 2018. The latest Bank of America Merrill Lynch Global Fund Manager Survey shows that global price inflation expectations are the highest on record, beating the previous high seen in 2004. If we indulge in a bit of simple projection, we might conclude that, if now is similar to 2004 (a big if), the global bond and stock markets could have another three years of the bubble ballooning before we get a repeat of the Great Financial Crisis, this time on steroids.

We’re expecting the debt bubble to deflate well before that but, as always, the Elliott waves will keep us on track, so stay tuned to Elliott Wave International and deflation.com to guide you through this incredible period in history.


US Price Inflation Expecations JAN2021-2