United States October CPI inflation preview

Continuing with my previews of key economic events, my attention now turns to the US’ October CPI report. Within this piece, I will explain the key things to understand, what to look out for, and what to expect.

1) The US’ M2 Money Supply is FALLING

In order to understand the outlook for inflation, the first thing one should check is the rate of change in the money supply. If it has been artificially increased (i.e. YoY M2 growth of >10% in the US), then one can expect inflation to rise significantly over the next year or two. If YoY growth in M2 is <10%, one can generally expect inflation to be relatively contained. If the Fed is conducting significant tightening, and money supply growth is being significantly constrained, then one should expect a major deceleration in inflation. Depending on how significant the constraint on the money supply is, the potential for deflation exists.

After an EXTREME surge in the M2 money supply in 2020 (the second highest annual average growth in the US’…