I hold the opinion that a period of dangerously high inflation could be on the horizon. Collectivist governments (and I would certainly put our current administration in that category) have historically tended towards inflationary policies – oftentimes to a disastrous extent. The Federal Reserve’s current lack of independence and the massive amount of debt being incurred by the federal government worrying me.
Mark Perry, however, points out a possible ray of light – at least for the short term. Annual M2 money growth is at its lowest point in 14 years.
Investopedia defines M2 as:
A category within the money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds.
A decrease in the growth of savings will reduce the amount of money banks and other financial institutions are able to lend, thus reducing the money supply. So these numbers could lead to the conclusion that, at least in the short term, inflation may not be a problem. Though this decline in M2 growth could also be looked at as evidence that inflation is very likely. As inflation severely impacts savings and investments, a likely move by anyone predicting inflation would be to save less. So while a lower M2 growth is not what one would expect in an inflationary environment, it could actually be an early warning sign from the financial markets.