**Challenging the Sticky Inflation Theory: Is Inflation a Thing of the Past?**
**Meet Steve Hanke: The Money Doctor**
Steve Hanke, a notable scholar known as the “money doctor,” is challenging the prevailing notion of “sticky” inflation that could present a serious challenge to the Federal Reserve’s goal of ensuring price stability and maximum employment in the United States. Hanke, a professor of applied economics at Johns Hopkins University, believes that inflation is no longer a concern and that the inflation story is history.
Hanke earned his moniker as the “money doctor” through his extensive experience advising heads of state and finance ministers on economic policy. He has served on President Reagan’s Council of Economic Advisers and played a role in tackling the fallout from the Asian Financial Crisis. Currently, Hanke is consulting with aides to Argentinian libertarian party candidate Javier Milei on combating the nation’s inflation.
**Monetarism and the End of Surging Prices**
Hanke is a proponent of monetarism, an economic theory that posits changes in the money supply as the primary driver of inflation. With the money supply in the U.S. contracting over the past year, Hanke argues that inflation is no longer a concern. However, this does not mean that consumer prices will fall (deflation); rather, it indicates the end of the era of surging rent, food, and energy prices.
Hanke challenges the focus on “non-monetary causes of inflation,” such as supply chain issues or rising corporate profit margins, as “utter rubbish.” In his upcoming study, set to be published in September, he demonstrates a one-to-one relationship between changes in the money supply and changes in inflation.
**Evidence from Wholesale Prices**
Hanke supports his theory with evidence from falling wholesale prices. He predicts that if the Federal Reserve continues to shrink the money supply, inflation will hit the “2% range pretty fast.” The producer price index (PPI), which measures wholesale prices, rose by only 0.1% from a year ago in June, down from a peak of 11.5% in April 2022.
Hanke points out that during a period of rising inflation, the producer price index led the consumer price index higher, while core inflation lagged behind. However, the situation has now reversed, with the producer price indexes and consumer price index falling, albeit with core inflation lagging. Hanke believes that these trends will continue if the Fed keeps shrinking the money supply.
**Positive Outlook on Inflation**
Hanke is not alone in his more positive view of inflation. Jeffrey Roach, chief economist at LPL Financial, sees the latest PPI data as another positive sign for investors hoping to see inflation dissipate. He predicts a slowdown in economic activity and further deceleration in consumer prices throughout 2023, particularly in transportation and freight.
While economists’ predictions on inflation varied at the start of 2023, it may be worth paying attention to Hanke’s insights. In February, he accurately predicted that inflation would fall throughout the year to a range between 2% and 5%. If Hanke is right, the real concern for the U.S. economy in 2023 will not be inflation but rather growth.
Steve Hanke, the renowned “money doctor,” challenges the sticky inflation theory and believes that inflation is no longer a concern in the United States. He advocates for monetarism, emphasizing changes in the money supply as the primary driver of inflation. Hanke supports his theory with evidence from falling wholesale prices. If his predictions hold true, the focus for the U.S. economy in 2023 will shift from inflation to growth.