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2024-12-06 15:22:06

maiakee on Nostr: M2 money supply is considered a better indicator of inflation than CPI because it ...



M2 money supply is considered a better indicator of inflation than CPI because it reflects the total money circulating in the economy, which can lead to future price increases.

While CPI tracks the price changes of a fixed basket of goods, it can “hide” real inflation by excluding asset prices, not fully accounting for substitution bias, and lagging behind money supply changes.

M2 is seen as a leading indicator, signaling inflation before it shows up in CPI, especially in cases where rising asset prices or increased money supply drive inflation. Therefore, many argue that real inflation is more accurately captured by M2 than CPI.

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