[bojangleslover]

Why can't it be both monetary and non-monetary? Say it's a vector, one element per CPI category. Throw housing in for good measure.

The direction of this vector can change due to non-monetary stuff like Russia and oil. But if all of the categories, especially those without clear non-monetary drivers, rise, then it's also monetary.

So maybe X = p_monetary + Q_nonmonetaty where p is a scalar and Q is a vector.

I think it is both. But the monetary side is controllable by our constituency. Friedman was still right.

[dskloet]

They aren't things you can add up, one is a cause of the other.

Monetary inflation is an increase in the money supply which happens when more money is borrowed, usually as a result of lower interest rates. Price inflation is in increase in the prices of good and services.

Monetary inflation causes price inflation and other things can also cause price inflation. But it's meaningless to add up monetary inflation and price inflation.

[kcatskcolbdi]

I think in this scenario you would be adding together the price inflation caused by monetary inflation with the price inflation caused by other things. If all sides are measurable you could then start identifying which side is driving price inflation primarily.

[ItsMonkk]

I like to think of money like water. You've got most people who spend every cent they get, that's rivers. You've got upper class people that save some, but if they have a lot they will spend slightly more, that's lakes. Then you've got the very top, whom no matter how much you give them, they won't spend another cent. Their the reservoirs.

So when you introduce money through debt, what you get is mostly the third group who takes out debt. If they have the money and don't actually spend it, you just get a lower velocity, you don't get any inflation. When assets are increasing faster than consumption items, of course they invest in assets, and you get stocks and homes and monkey jpeg reciepts going up.

That is, until a recession is coming around. When a recession is incoming, money managers look at history and find the best recession-proof investments. And it turns out some of those items are in the consumption basket. And it turns out widely inflated asset prices are exactly what you need to get out of.

What happens when you buy oils futures contracts 2 years out? Some bank will work out a arbitrage opportunity, hedge that contract, some other bank will hedge them, and within a few days the value of oil TODAY goes up. That's inflation.

And so you can say that expectations of interest rising causes recession fears, and those recession fears cause inflation. If the money supply drops, or is expected to drop, or we think that the likelyhood of debts getting margin-called is going to increase, you will see inflation.

But you can only see that inflation, as Friedman rightly pointed out, if the reservoirs are full. Wealthy people store possible inflation in their reservoirs. If as the Fed you completely ignore the possibility that the dam can release all of that water out into the rivers, you're always going to be surprised when it happens.

[throw0101a]

> Why can't it be both monetary and non-monetary?

Empirical data says money supply often doesn't do much. See Japan for example:

* https://fred.stlouisfed.org/graph/?g=PA7P

Data series:

* https://fred.stlouisfed.org/series/FPCPITOTLZGJPN (JP inflation)

* https://fred.stlouisfed.org/series/MYAGM2JPM189S (JP M2)

> Friedman was still right.

Lots of folks were following Friedman-like ideas in 2010:

> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

* https://economics21.org/html/open-letter-ben-bernanke-287.ht...

And nothing happened—just like the Keynesians said. See also 'expansionary austerity' that many right-leaning folks were pushing, which also turned out to be a bust:

* https://www.washingtonpost.com/news/wonk/wp/2012/10/12/imf-a...

* https://archive.ph/Efnum

* https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Exp...

* https://www.theguardian.com/business/ng-interactive/2015/apr...

[seoaeu]

Cost of “shelter” is already 32% of the CPI calculation. I really don’t understand this meme that housing costs aren’t factored in

[MacsHeadroom]

When housing and rents jump 20-30% consumers see these advertised prices immediately and start factoring them into their future budgets. The average renter will have to pay these prices in 6 months (when their lease is up). But the prices won't be reflected in the CPI for another 16 months.

CPI: Shelter measures rents people are currently paying, not new rental prices. New rental prices aren't fully appreciated for 12 months. So the CPI: Shelter figure lags by a year plus a quarter (for data collection).

The reasons for the lag are solid. But it adds to the reasons CPI is an aweful indicator of consumer inflation expectations and effects on personal budgets.

[orwin]

> Friedman was still right.

that would made his inflation theory the only theory he was right about.

Even in this case, 90+% of the money supply is created by private banks, so wouldn't that make big bank responsible for inflation?

[incrudible]

Banks create this money through lending with the intent to profit, which means they take on risks they would not otherwise take on if so called risk free interest is suppressed by central bank policies like low overnight rates and QE.

Of course, the money created in this way is spent mostly on assets, so all the price inflation mostly happens there, not in the CPI. Friedman is still right if we look at these markets as largely disjoint.