- According to veteran economist Steve Hanke, the US no longer has an inflation problem.
- “I think the inflation story is history. One reason is that the money supply in the United States has contracted -4% year-on-year,” Hanke, a professor of applied economics at Johns Hopkins University, told CNBC’s Street Signs Asia on Thursday.
- Hanke added: “We haven’t seen that since 1938. So changes in the money supply lead to changes in the price index and to inflation.”
According to veteran economist Steve Hanke, the US no longer has an inflation problem.
“I think the inflation story is history. One reason is that the money supply in the United States shrank -4% year over year,” said Hanke, professor of applied economics at Johns Hopkins University. said CNBC’s Street Signs Asia on Thursday.
“We haven’t seen that since 1938,” said Hanke. “Changes in the money supply lead to changes in the price index and inflation.”
Prices displayed at a grocery store in New York City on February 1, 2023.
Leonardo Munoz | Corbis News | Getty Images
The US inflation rate for June came in lower-than-expected at 3% on Wednesday, the smallest year-on-year increase in two years. The core CPI, which excludes volatile food and energy prices, rose 4.8% yoy and 0.2% mom.
The latest data could give the Federal Reserve some leeway as the central bank decides the direction of interest rate policy.
The US Producer Price Index is expected later on Thursday. Should prices also fall, this could further influence the Fed’s decision to end the rate-hike cycle soon.
According to the CME FedWatch tool, traders are betting that there is a 92.4% chance that the Fed will leave rates unchanged at its July meeting.
“When inflation was in full swing, first the producer price index and then the consumer price index shot up rapidly. And finally, the core gradually rose like a snail,” Hanke said.
Forget all the propaganda we hear – that the Federal Reserve chairman has a tough problem, that this will be a long fight, that things are difficult and so on. Things aren’t sticky.
Steve Hanke
Professor, Johns Hopkins University
“Now we have turned the corner and producer price indices are falling like a stone. The consumer price index falls almost like a stone. And core is way behind,” he said, adding, “We’re going to see that all go down as long as they continue with the quantitative tightening.”
Central bank policymakers tend to be more focused on core inflation, which is still well above the Fed’s annual target of 2%.
But Hanke noted that if the Fed continues to “do what it’s doing,” it can “get to the 2 percent area pretty quickly.”
“Forget all the propaganda we hear – that the Federal Reserve chairman has a tough problem, that this is going to be a long fight, that things are tough and so on. Things are not difficult,” the professor remarked.
— CNBC’s Jeff Cox contributed to this article