The Telegraph, February 13, Roger Bootle
Now that it is widely acknowledged that inflation is surging to uncomfortable levels and that central banks have been slow in realising the extent of the inflationary danger, the search is on for who or what is to blame for this forecasting and policy error.
One candidate carries strong echoes of the past, namely the idea that the culprit was central banks’ neglect of the money supply. This has a certain cogency, not least because measures of broad money have surged in all the main monetary areas and when this first began in 2020, some monetarist economists warned of inflation ahead.
There has been a long history of some economists believing that monitoring the money supply was all that you needed to do in order to anticipate changes in inflation. The great American economist, Milton Friedman, once said: “Inflation is always and everywhere a monetary phenomenon”.
In reply to this, another American economist and central banker, Henry Wallich, said: “Inflation is a monetary phenomenon in the same sense that shooting people is a ballistic phenomenon”. I think this hits the spot. Money is always involved in the inflationary process but the links between cause and effect need close analysis. And not all monetary expansions are created equal.
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