The M2 money supply reached $22.5 trillion as of Feb. 2, growing at a yearly rate of 4.59%, while the inflation rate stood at 2.41%, according to LongtermTrends GmbH.
The relationship between money supply growth and inflation is closely monitored by economists and policymakers, as changes in these indicators can affect purchasing power and economic stability.
LongtermTrends GmbH reports that the M2 measure includes physical cash, checkable deposits, and less liquid forms such as savings accounts. The organization said, “The chart above plots the yearly M2 Growth Rate and the Inflation Rate, which is defined as the yearly change in the Consumer Price Index (CPI). When inflation is high, prices for goods and services rise and thus the purchasing power per unit of currency decreases.” The report also notes that historically, M2 has grown along with the economy but has also increased during wars and recessions alongside federal debt to GDP.
According to Bannister and Forward (2002), “Money supply growth and inflation are inexorably linked.” The data sources cited include the Federal Reserve Bank of St. Louis for both M2 Money Stock and CPI figures, Robert Shiller Online Data for historical CPI values, and additional information from Investopedia on monetary concepts.
The velocity of money is another factor discussed in the report: “High money velocity is usually associated with a healthy, expanding economy. Low money velocity is usually associated with recessions and contractions.” The report explains that when velocity declines, it can offset increases in money supply, potentially leading to deflation instead of inflation.
Further details on these trends can be found at LongtermTrends GmbH’s website.
