Does money growth help explain the recent inflation surge?

BIS Bulletin  |  No 67  | 
26 January 2023

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.