Hanke’s commentary follows barely 24 hours after the US inflation rate for June came in lower than expected at 3%.
Steve Hanke, a highly-revered professor of applied economics at Johns Hopkins University, has shared an expert opinion on inflation in the United States. According to him, inflation, as far as the US is concerned, is now a thing of the past.
The veteran economist shared his view in the early hours of Thursday while speaking on CNBC’s “Street Signs Asia”. He was quoted as saying:
“I think the inflation story is history. One reason for that is that money supply has been contracting on a year-over-year basis by minus 4% in the United States.”
Hanke also recalled that the last time changes in the money supply happened like that was in 1938. “Money supply changes cause changes in the price index and inflation,” he added.
Hanke’s commentary follows barely 24 hours after the US inflation rate for June came in lower than expected at 3%. That is, notably, the smallest year-on-year increase in two years. Also, the core consumer price index (CPI), which generally excludes food and energy prices, rose 4.8% in a year, but 0.2% month-on-month.
In his explanation, Hanke revisited how inflation rose, almost simultaneously, with the producer price index and the consumer price index. However, he also pointed out how the core was the slowest to rise at the time.
Similarly, now that policies are proving somewhat effective and the producer price, as well as consumer price indexes, are falling hard, the core lags yet again, he claims.
Nonetheless, Steve Hanke is positive that even the core would eventually come down significantly. But that is as long as policymakers “continue with quantitative tightening”.
As of publication, core inflation is still running well above the Fed’s 2% annual target. But if the Fed sustains its tightening policy, “it can reach the 2% range pretty fast,” Hanke concluded.
The US producer price index is due later today. And if it also shows prices falling, the Fed may have to end the rate hiking cycle soon.
Meanwhile, the CMEFedWatch tool also suggests that traders have a 92.4% expectation that the Fed rates will remain unchanged in the Fed’s July meeting.
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