Are Inflation Concerns Inflated?

M2: Percentage Change from Year Ago
M2: Monthly Percent Change, At an Annual Rate
The charts above (click to enlarge) are from the St. Louis Fed's most recent "Monetary Trends" report for M2 growth on a: a) percent change from a year ago basis (top chart), and b) monthly percent change at an annual rate basis (bottom chart).

If stability in the growth of M2 was one measure of monetary policy stability, it would seem like the Fed has been doing a pretty good job. The year-to-year change has been steady at about 5% in 2004, 2005, 2006, 2007 and 2008. It's almost as if the Fed has had a fixed money growth rule for M2 of 5% per year since 2004. Although the month-to-month annualized change spiked in early 2008, it is now down to about 0%.

Doesn't this mean that inflation should NOT be a problem?

Comments

[TinyTim]

only if you believe the numbers

[capitainecrunch]

Lets set aside the M2 for a moment and just use common sense:
-we have had inflation showing up in food and energy prices already (but conveniently the government chooses not to count food and energy in computing inflation figures).
-we know that China is reducing the subsidies for energy, that they are facing wage increase demands and higher commodity prices across the board. All that will results in price increases of the goods we import from China (and other countries in general).
-most producers in the USA are facing similar problems and are starting to increase prices on the goods we produce here (DOW, Airlines, transports..etc).
-most utilities are still getting supplies from long term contracts negotiated at old energy prices. When these expire, expect the cost of gas and electricity to jump.
In my opinion, inflation has just started to hit us with food and oil prices, the worse is yet to come. I'm not waiting for M2 to tell me!

[tom kern]

price changes are increased steadily over a period of time. the obvious recent spike in oil has a slightly lower effect on other commodities. credit availability has shrunk even though rates have now been kept on hold. sounds like clear skies ahead to me. pop the cork ! i see opportunity.