Analysis of Inflation Rate vs. M2 Growth Rate by Country

 

The relationship between the Inflation Rate (%) and M2 Growth Rate (%) (money supply growth) varies across countries, showing interesting economic dynamics.

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1. General Observations

• Countries with high M2 growth rates tend to have higher inflation rates.
• Some exceptions exist where M2 growth does not directly correlate with inflation.
• Emerging markets and economies with unstable monetary policies show extreme values.

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2. High Inflation & High M2 Growth

• Argentina (Inflation: 118.00%, M2 Growth: 67.19%)
  • Severe inflation crisis; excessive money supply expansion.
• Turkey (42.12%, 43.92%)
  • High inflation driven by aggressive monetary expansion.
• Russia (9.50%, 66.96%)
  • Inflation still high despite tight monetary policy attempts.
• Mexico (3.59%, 38.88%)
  • High M2 growth but moderate inflation, possibly due to policy interventions.

💡 Pattern: Countries with inflation crises (e.g., Argentina, Turkey) have high money supply growth, leading to monetary devaluation and hyperinflation.

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3. Moderate Inflation & M2 Growth

• Brazil (4.83%, 13.32%)
  • Inflation under control despite relatively high money supply expansion.
• India (5.22%, 12.36%)
  • Slightly elevated inflation, but stable due to strong economic growth.
• Indonesia (0.76%, 10.08%)
  • Low inflation despite double-digit money supply growth.
• Germany (2.30%, 12.72%)
  • A surprising outlier; inflation remains low despite strong M2 growth.
• France (1.40%, 10.35%)
  • Similar to Germany, relatively low inflation with higher money supply.

💡 Pattern: Some developed economies (Germany, France) seem resilient to inflation despite increasing M2, likely due to efficient financial systems and stable demand for money.

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4. Low Inflation & Low M2 Growth

• China (0.50%, 0.55%)
  • Very low inflation and controlled money supply, possibly due to weak domestic demand.
• Switzerland (0.60%, 1.96%)
  • Extremely stable, indicating strong monetary and fiscal discipline.
• Canada (1.80%, 0.14%)
  • Almost no money supply growth, low inflation.
• Euro Area (2.50%, 0.20%)
  • Strict monetary control.
• Japan (3.60%, 0.22%)
  • Moderate inflation despite stagnant money supply, possibly due to supply-side factors.

💡 Pattern: Advanced economies (China, Switzerland, Euro Area) keep inflation low without excessive M2 expansion, demonstrating strong monetary control and weak inflationary pressures.

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5. Special Cases

• Saudi Arabia (1.90%, -1.28%)
  • Negative M2 growth (money contraction) but stable inflation, possibly due to oil wealth and monetary peg.
• Netherlands (3.30%, 0.006%)
  • Very low M2 growth but moderate inflation, indicating non-monetary inflationary pressures.
• United States (2.90%, 0.40%)
  • Moderate inflation despite near-zero money supply growth, likely driven by supply-side inflation (energy, housing).

💡 Pattern: Some economies have inflation driven by external factors (energy, supply shocks) rather than money supply expansion.

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6. Correlation Between Inflation & M2 Growth

• The data suggests a positive correlation between M2 Growth and Inflation, but not a perfect one.
• Outliers (e.g., Germany, France, Indonesia) show that factors like monetary policy, fiscal policy, and demand-side dynamics influence inflation beyond just money supply.

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7. Conclusion

1. High inflation countries (Argentina, Turkey, Russia) have excessive M2 growth.
2. Advanced economies (Switzerland, Canada, China) manage stable inflation with low or negative M2 growth.
3. Some economies (Germany, France, Indonesia) show low inflation despite M2 growth, indicating strong financial stability.
4. Inflation is not solely determined by M2 growth, as supply-side factors (oil, housing, global trade) also play a role.