Headline CPI in the U.S. broke another 41-year record last week, coming in at 9.1%. The “greatest inflation we’ve had in 41 years” is likely as high as it’s going to get, according to Steve Hanke, professor of Applied Economics at Johns Hopkins University.
Hanke has been calling for the CPI to reach 6% to 9% since as early as July, 2021, when he and co-author John Greenwood, Chief Economist of Invesco, published an Op-Ed in the Wall Street Journal entitled “Too Much Money Portends High Inflation.”
Hanke and Greenwood argued that an expansion of the money supply will inevitably lead to a rise in consumer prices at all levels.
Now that inflation has reached the upper range of his 6% to 9% forecast, Hanke said that it has likely peaked for now.
“Is this the peak? I would say, yes, probably pretty close to the peak. We said 9%, it’s 9.1%, that would suggest that a year ago we thought 9% was going to be about the peak. And now, where are we going from here?” he said. “It looks like we’re going to be 6% to 7% for the rest of this year and the next of next year, going into 2024.”
Hanke noted that the excess money supply that has already been created will take time to be “sucked out” of the financial system, adding that according to his calculations, there is a 70% chance of a recession by year-end.
“We have a model, the Quantity Theory of Money, MV = PY, that’s how we get there. It’s a model that’s been around since the 16th century, and it worked like a charm,” he said.
The Quantity Theory of Money states that changes in prices correspond to changes in the money supply.
For more information on how governments are attempting to fight inflation, and whether or not Hanke thinks these policies will be effective, watch the video above.
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