Ex-food and energy, inflation is at 0.9% for the past twelvemonth. Even if you include those in the longer measure, annual inflation has been 1.7%. (Recall that we paid an average of more than $3.00/gallon for most of the Spring of 2010, for instance.)
There is a simple reason “everyone” expected higher numbers: they were looking at money supply, not circulation.
As Jim Hamilton notes, money is only supply when its being circulated.
The “intermediaries” aren’t intermediates; they’re SPOFs. Hamilton’s graphic tells all:
All that “extra” money is being kept in mattresses. Financial-Institution-shaped mattresses, but mattresses nonetheless. The velocity of monetary reserves is 0. So the weighted-average velocity of money is much less than the standard formula would imply.
The U.S. needs to deal with financial institution mattress stuffing before it can have such problems.