📝 Expansionary Policies Uncorrelated From Prices: Natixis

The current high inflation in OECD countries is often held up as a consequence of overly expansionary economic (fiscal and monetary) policies. Does this argument tally with the facts?

There has no longer been a correlation between the quantity of money and goods and services prices since the 1990s: a sudden re-correlation would be astonishing.

The highly expansionary fiscal policy conducted during the subprime crisis did not bring about inflation, on the contrary. Rather than a consequence of overly expansionary economic policies, the recent inflation probably results from new economic shocks:

1. The shift in the distribution of demand from services to goods in the wake of the COVID crisis

2. Changing labour market attitudes among wage earners

3. The fallout from the war in Ukraine

We therefore find that it is not the expansionary fiscal and monetary policies conducted in OECD countries that caused inflation to return in 2022. We believe that the return of inflation is due to new shocks: shift in the structure of demand from services to goods; change in wage earner attitudes in the wake of COVID; the war in Ukraine. Expansionary economic policies, and in particular monetary policy, have had the effect of stimulating demand for assets (real estate and financial) and consequently driving up asset prices. - Natixis