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March 26, 2009



I've always thought inflation was much more allied to the exchange rate and Union greed....

Andrew Lilico

All this misses the point. The Bank of England's quarterly inflation report produces an adjusted M4 series (see Chart 1.2), and has done at each inflation report since August last year. This shows adjusted M4 growing at just 3.8% annually and having dropping like a stone - implying three-monthly negative growth. Back in 2006 adjusted M4 was growing at above 14%, and the average since 1992 is 8%. There is a very significant monetary contraction going on, implying considerable deflationary pressure.


The adjustment Andrew refers to simply strips out financial institutions' cash holdings, to leave households and companies' bank deposits.
I agree - and indeed said so in my day job some time ago - that the fall in the latter is a recessionary sign. However, the fall seems to have stopped recently:

Svenson in Australia

I really don't get why USA is undergoing recession. They seem to be dug deep into money problems. What happened to Uncle Sam?


don't you need to strip out the influence of the velocity of circulation before you can make sense of this data?


nah I don't get that people still talk about the Phillip's curve. Its not a theory or set of observations that has been conclusively proven. Data is volatile. There is no proven automatic link between inflation and unemployment. There is a relationship, but no-one know's that it is causal for sure.

Better as the Phillip's theory?

rolex daytona

And a lot of it reflects a switch from bank deposits to securities; foreigners “other investments” in the UK, http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.

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