(Reuters Breakingviews) - It seems to take a lot of money to generate even a little bit of inflation. Around $20 trillion worth of global stimulus measures have been unveiled so far this year on Bank of America’s calculations. That’s more than a fifth of last year’s world economic output. Yet investors are not exactly quaking.
Take the so-called five-year/five-year forward, which predicts inflation rates in the second half of the following decade. In the euro zone, this gauge is up an impressive three-quarters from an ultra-low 0.72% in March. But at 1.25%, it is still lower than in January, and significantly below European Central Bank boss Christine Lagarde’s target of just under 2%.
If Milton Friedman was anywhere near right about inflation, then the markets are dead wrong. The Nobel Prize-winning economist was sure that more money makes for higher inflation. Monetarists of his school make a big deal about the M2 measure of money supply, which includes cash in circulation and deposits that are fairly accessible. In June, euro zone annual M2 growth accelerated to 9.2%, the fastest pace since 2008. The comparable U.S. measure is growing at a stunning 23%.
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