Real wages unchanged, real money supply increases in October
Real wages have still not even increased 1% in the last 2 1/2 years.
Because, as I noted yesterday, so much of consumer inflation, and therefore real wages, depends on gas prices, and oil prices have been – well – crashing for the past several weeks:
we are likely to see a further decrease in inflation, so consumer purchasing power should increase.
Another measure worth updating for business cycle purposes is real M1, which rose to a new high in October:
as the nominal increase in M1 surpassed inflation handily.
Growth in real M1 had been decelerating, and was on the cusp of turning negative throughout the summer. But in the last two months it has rebounded. This is a good lesson in not simply projecting the trend in leading indicators forward — because we never know when that trend may change.
M1 is a lagging indicator though. Something you also forgot to mention. It is now showing the burst of inflation we started to see last spring.
Bert Schlitz,
I don’t understand your statement that M1 lags inflation. The usual view is the other way around; i.e., inflation lags M1. And by the “usual view” I mean the Friedman view. For example:
http://www.lancaster.ac.uk/staff/ecajt/inflation%20lags%20money%20supply.pdf
The paper is a little old, but I believe it still represents the consensus view, at least to the extent that modern macro has much to say about monetary aggregates given the well known issues with velocity and the money multiplier. Do you have some academic reference or empirical model to support your claim that M1 lags inflation?