The myth of the commodity shock: global money supply is soaring again

By Daniel Lacalle – DLacalle.com

The world continues to add liquidity at a pace inconsistent with stagnant productivity, weak private sector growth and sluggish consumption, which increases inflationary pressures.

The quantitative theory of money shows that it is not only the stock of money that matters when measuring inflationary pressures but also how quickly it circulates.

When money supply soars and money velocity stagnates or declines, we may see asset inflation but not necessarily worrying increases in consumer prices. However, when both rise, while productivity stagnates, the loss of purchasing power of citizens becomes a real concern.