Since the COVID-19 pandemic of 2020, most countries have witnessed a rapid runup in inflation followed by hasty retreat. For some nations, the trip’s been a wild rollercoaster ride, a lurching ascent towards a summit where the houses below look like Monopoly pieces, followed by a steep, head-spinning drop. For others, the journey has resembled a snowmobile’s wintry climb up a low, sloping hill, and the gliding descent down the other side. Only the general, up-and-down pattern is the same. But some nations never experienced a steep inflation jump at all. Put simply, “Big Inflation” wasn’t a global phenomenon.
Our research into the link between money supply and inflation in 27 countries since 2020 shows that where the roller-coaster scourge happened, as in the U.S., the cause was a huge, misguided spike in the money supply. In countries where M2 (a measure of the money supply that includes cash, checking deposits, and other deposits readily convertible to cash) rose only gradually, the price rise proved moderate and didn’t require draconian, potentially growth-crushing measures to correct.
