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Inflation in the time of Covid19 II the liquidity surge

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  • Jean-Francois Mercier

Abstract

Sizable policy stimulus since the start of the Covid-19 crisis has resulted in a sharp acceleration in global money supply. However, this acceleration is uneven, and in many cases not unprecedented. Furthermore, some typical elements of a monetary boom, such as rising demand for new loans or lax bank lending standards, are not present at this stage. Hence, this latest surge in money supply need not result in sustainably higher inflation, and indeed in most major economies money growth has been a poor predictor of inflation in recent decades. However, were fiscal policies to remain expansionary for an extended period and not be matched by a timely normalization of monetary policies, the strong money supply expansion could be sustained and eventually trigger higher inflation.

Suggested Citation

  • Jean-Francois Mercier, 2021. "Inflation in the time of Covid19 II the liquidity surge," Occasional Bulletin of Economic Notes 11035, South African Reserve Bank.
    • Handle: RePEc:rbz:oboens:11035
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    File URL: https://www.resbank.co.za/content/dam/sarb/publications/occasional-bulletin-of-economic-notes/2021/inflation-in-the-time-of-covid-19-II-the-liquidity-surge-october-2021.pdf
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