When Will Inflation End?
The turning point in the inflationary cycle is already here.
Barring any significant increases in spending and borrowing or sharp declines in production, the rise in prices is about to slow drastically.
We’ve talked before about how inflation will end sooner than later.
But today we have direct data to back it all up.
Of course, few will realize what’s actually happening.
They’re focused on the Fed’s next move and all this other stuff that’s just marginal when it comes to inflation.
Inflation is basically more dollars chasing the same amount of goods and services.
If you make more dollars without making more stuff, prices go up.
If you stop making more dollars, prices will flatten.
It’s that simple.
If you agree, you’ll see inflation’s turning point is already here and prices are about to follow.
It all starts with the amount of dollars currently in circulation.
That’s defined as “M2 Money Supply.”
M2 Money Supply, or just “M2,” is the total “cash, checking deposits, and easily-convertible near money” that’s on hand.
This is generally considered the “spendable” money in the economy.
Over the long-run M2 matches inflation you see in prices pretty closely.
Now take a look at this chart from the Federal Reserve of M2 Money Supply:
The chart shows exactly what’s playing out right now.
M2 surged after the pandemic began and continued climbing throughout.
With the lockdowns and everything, productivity wasn’t going to keep up.
So it was a case of more dollars in circulation, not as much stuff, so prices were going to go up.
And they have.
The total M2 climbed from under $16 trillion at the start of 2020 all the way up to more than $22 trillion.
That’s an extra $6 trillion dollars out there.
That’s a lot to absorb for a $23 trillion U.S. economy.
Without a subsequent increase in goods and services to match the increase, prices will go about.
So overall the price increases could increase around 23%, the increase in money supply divided by GDP.
Although the increases won’t be spread perfectly across all goods and services, we’re definitely in the midst of prices rising 20% across the board.
We’re hopefully halfway there.
So expect to see some easing of inflation soon as long as supplies of goods and services stay level (or, like energy, are even allowed to increase!) and the big M2 creation mechanisms don’t kick into high gear again.
Be prepared as well.
Few see an end to inflation right now just like few saw the inevitable inflationary spike we have now.
And when few see something, there’s bound to be an opportunity.