DailyWealth’s Dr. David Efrig likes to keep an eye on the M1 multiplier (as do I) as an indicator of whether or not inflation is in control:
The M1 money multiplier monitors the amount of money individuals and businesses have to spend on consumption or investment… relative to the money available for banks to lend.
When the ratio is less than “1,” it implies banks aren’t lending as much as they could and/or folks have less to spend on things that would increase economic activity. A reading greater than 1 suggests individuals and businesses have money in reserve that is primed to flow into the economy… like water building behind a dam.
As you can see from the chart below, the reservoir is low. Money is still not moving through the economy swiftly or broadly among sectors. You can take all the dire warnings of inflation and chuck them in the garbage right now.
Until this indicator ticks above 1, inflation is NOT a problem… or even a worry in the near term.
In the broader economy, the only significant rising prices I see on Main Street are gas prices, and to a lesser degree, coffee. While input costs have been rising at a fast clip, it appears, at least to me, that producers have no pricing power with the end consumer. So, they are being forced to “eat” these higher input costs, and sacrifice profit margin.
(Cue Jim Rogers: “I don’t know where Brett shops, but…”)
Gold and silver did prove me wrong, however, to the extent that deflation would stay in total control. With gold at an all-time high, and silver at a 30-year high, it appears that the “hot money” from QE1 and QE2 have at least made their presence felt in most asset classes, with the notable exception of housing.