Saturday, January 24, 2015

Venezuela Price Inflation is Now Over 60%

Both Venezuelan price inflation and money supply growth are climbing at an annualized rate of over 60%.  The ascent of the two growth rates are not a coincident. Print more money and there is more money with which to bid up prices.  The correlation isn't an exact one-to-one correlation but the overall trend is clear,

Those watching the US economic situation should keep this in mind. Money supply growth has been exploding in the US, but price inflation acceleration has not yet followed. It is a period very similar to 2011 to 2103 Venezuela, where money supply growth substantially exceeded price inflation, but that eventually changed.

At this point there is no indication that price inflation in the US will climb to the levels currently seen in the US, but eventual price inflation in the US in the 5% to 10% range is very likely.

Note: Hayek explained why Milton Friedman erred in promoting the idea that there was an exact correlation between money supply growth and price inflation, here.


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