Does money growth help explain the recent inflation surge?

Key takeaways

• The strength of the link between money growth and inflation depends on the inflation regime: it is one-to-one when inflation is high and virtually non-existent when it is low.
• A link can also be seen in the recent possible transition from a low- to a high-inflation regime. An upsurge in money growth preceded the inflation flare-up, and countries with stronger money growth saw markedly higher inflation.
• Looking at money growth would have helped to improve post-pandemic inflation forecasts, suggesting that its information value may have been neglected.

Annex

The views expressed in this publication are those of the authors and not necessarily those of the BIS.