Money growth and the post-pandemic inflation surge: updating the evidence

Article by Mr Claudio Borio, Head of the Monetary and Economic Department of the BIS, Mr Boris Hofmann, Head of Monetary Policy in the Monetary and Economic Department of the BIS and Mr Egon Zakrajšek, Executive Vice President and Director of Research, Federal Reserve Bank of Boston, in, published on 24 January 2024.

BIS speech  | 
24 January 2024

The post-pandemic inflation surge confounded policymakers. This column examines the link between money growth and inflation, and finds that the strength of that link depends on the inflation regime: it is one-to-one when inflation is high, and virtually non-existent when inflation is low. Excluding countries with very high inflation rates, the link that was clearly apparent across countries when inflation flared up in 2021 and 2022 lost statistical and economic significance thereafter. Though money growth can carry useful information for policy, using that information reliably requires considerable nuance.