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Chart: Money Supply and Inflation Over 150 Years



This infographic is available as a poster.

Money Supply and Inflation

Money Supply and Inflation

This infographic is available as a poster.

Chart: Money Supply and Inflation Over 150 Years

How closely are money supply and inflation related?

This Markets in a Minute from New York Life Investments shows the trajectory of money supply and inflation, taking a historical look at their relationship since the Industrial Revolution.

Defining Money Supply and Inflation

To start, here is a brief overview of money supply and inflation:

  • Broad money supply: measures the amount of money circulating in the U.S. financial system, including assets that can be converted into cash.
  • Inflation: measured by the consumer price index (CPI), inflation is the average level of prices in the U.S. based on a basket of goods and services over a given time period.

When more capital is injected into the economy, it can cause consumer demand to grow. Assuming a similar amount of goods and services available, consumers are willing to pay more–which leads to rising prices.

Money Supply and Inflation Over History

Here are the key periods where money supply per capita was the highest in recent history.

Five-year rolling periods were used to eliminate the noise found in one-year periods. As a result, this shows consistent periods of monetary growth, and explains why the recent inflation spike isn’t as pronounced.

As seen in the table below, there were five periods where broad money per capita growth exceeded 50%.

Time PeriodPeak 5-Year Broad Money Per Capita Growth*5-Year CPI Growth
1902 (Industrial Revolution)50%0%
1920 (post-WWI)76%100%
1945 (WWII)105%36%
1979 (Great Inflation)54%45%
2021 (COVID-19)56%13%

*Rolling 5-year cumulative growth
Source: Lyn Alden,, St. Louis Fed, Òscar Jordà, Moritz Schularick, and Alan M. Taylor. 2017. “Macrofinancial History and the New Business Cycle Facts.” in NBER Macroeconomics Annual 2016, volume 31, edited by Martin Eichenbaum and Jonathan A. Parker. Chicago: University of Chicago Press. (Mar 2022)

During WWII, the money supply doubled to finance war efforts. Inflation was high during and after this time, particularly in 1946-47, but returned to stability in 1949.

Amid soaring government deficits in the 1970s, inflation climbed upwards. In response the U.S. abandoned the monetary system established in WWII, decoupling from the gold standard, adopting the one we use today.

Today, while money supply per capita has grown 56%, inflation has increased, albeit at a muted rate compared to other periods. In addition, it’s been just two years since the money supply grew at such rapid rates. How inflation will play out in the future remains to be seen.

Two Historical Exceptions

There are two exceptions where inflation didn’t rise as sharply when the money supply increased.

Between 1875 and 1910, the U.S. emerged as a superpower. During this time, several technological innovations took place including the lightbulb, electrification, and the internal combustion engine. With the Spindletop oilfield advancements in 1901, more oil was produced there in one day than in all global oil fields combined.

As a result, this created real growth and vast improvements in productivity rather than inflation.

The second time period is from the 1990s onwards, with the advent of the internet. As computing power and automation improved, it led to productivity gains and deflationary pressures. As seen in the employment cost index, wage growth decreased amid globalization. Despite influxes of money supply, inflation remained low for decades.

What’s Next?

The war in Ukraine has led everything from nickel to wheat and food staples to rise in price. Supply chain disruptions are also fueling higher inflation. Whether or not today’s inflation echoes the price shocks of the 1970s or supply shock of the 1940s (or both) is an open question.

At the same time, the Fed ended its net purchases of Treasuries and mortgage-backed securities in March amid elevated inflation. These emergency measures were used to support the economy during COVID-19. Overall, they totaled $4.6 trillion and the Federal Reserve’s balance sheet doubled over two years.

Going forward, the Fed plans to significantly reduce its balance sheet and raise interest rates. Economists predict inflation will continue to rise in 2022, but long-term forecasts suggest they may fall near the Federal Reserve’s 2% goal.

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Markets in a Minute

Visualizing Housing Prices and Inflation

Is there a correlation between housing prices and inflation? In this graphic, we chart their relationship over three decades.



Housing Prices and Inflation

This infographic is available as a poster.

Visualizing Housing Prices and Inflation

Do housing prices feed into inflation?

Often, rising housing prices lead to higher rents, and rent contributes to inflation. In fact, shelter makes up over 30% of the consumer price index (CPI), a common inflation measure.

Still, the relationship is not 1:1. Historical data has shown a lag between housing prices and the CPI, while other factors—such as input prices and demand—impact their relationship.

This Markets in a Minute from New York Life Investments charts housing prices and inflation over the last 30 years.

Housing Prices and Inflation in Context

In the first quarter of 2022, U.S. housing prices rose at the fastest rate in over three decades—jumping over 18% in the last year.

Not only that, housing price growth has been at a double-digit annualized pace for each of the last six quarters, going back to Q4 2020.

Rising construction input costs have been a key factor. Combined labor and material costs increased 3% in 2019, in the line with the historical average. By 2021, these costs increased 10%, driven by supply-chain disruptions. Low interest rates also boosted demand.

Below we look at the 20 highest annual changes in the price index by quarter since 1992. Data is based on the Federal Housing Finance Agency’s House Price Index.

RankYearQuarterHousing Price Index Change
(Previous 4 Quarters)

Seasonally-adjusted purchase-only index

Since CPI is a cost-of-living index, it serves to track the price of goods and services people consume. That’s why an increase in housing prices, in theory, can impact inflation.

Like the growth in housing price increases, inflation has hit multi-decade highs in 2022. Below, we rank the years with the highest inflation since 1992.

RankYearCPI Annual Percent Change

*An estimate for 2022 is based on the change in the CPI from first quarter 2021 to first quarter 2022.
Source: Bureau of Labor Statistics (2022)

Of course, higher housing prices are not the only factor contributing to higher inflation. Take 1991. Inflation reached 4.2% driven by higher energy costs due to conflicts in the Middle East. During this time, housing prices saw relatively slower growth.

Also consider the 2008 Global Financial Crisis, where inflation hit 3.8%. Housing prices increased at double-digit speed a few years earlier, eventually hitting a peak in 2007. Meanwhile, the price of West Texas Intermediate crude oil soared from $70 a barrel in 2007 to $140 by July 2008, likely having a more immediate affect on inflation.

What’s Ahead

How will rising housing prices contribute to inflation in the near future?

First, the shelter component of the CPI looks at data from both renter-occupied units and owner-occupied units. As mentioned above, rising housing costs often lead to higher rent inflation.

Over 2022, the pace of rent inflation is anticipated to accelerate 3.4 percentage points relative to the pre-pandemic five-year average, based on analysis from the San Fransisco Fed. As a result, this is forecasted to increase CPI by 1.1 percentage points (31% of 3.4 percentage points). Given their historical relationship, accelerating rent inflation could materialize in higher CPI.

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Identifying Trends With the Relative Strength Index

When is the S&P 500 Index considered overbought or oversold? The relative strength index may offer some answers to identifying market trends.



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Identifying Market Trends: The Relative Strength Index

What happens when the S&P 500 Index enters oversold territory? Does the market reverse, or continue on this trend?

A widely-used momentum indicator, the relative strength index (RSI) may offer some insight. The RSI is an indicator that may show when a stock or index is overbought or oversold during a specific period of time, indicating a potential buying opportunity.

This Markets in a Minute from New York Life Investments looks at the RSI of the S&P 500 Index over the last three decades to show how the market performed after different periods of overbought or oversold conditions

What is the Relative Strength Index?

The RSI measures the scale of price movements of a stock or index. In short, the RSI is used to calculate the average gains of a stock divided by the average losses over a certain time period. These are then tracked across a scale of 0 to 100. Broadly speaking, a stock is considered overbought if it reads 70 or above and it is considered oversold if it is 30 or below.

For example, when the S&P 500 Index has a RSI of 85, an investor may consider it overbought and sell their shares. Conversely, if the RSI hits 25, an investor may buy the S&P 500 thinking the market will bounce back.

The RSI is often used with other indicators to identify market trends.

The Relative Strength Index and S&P 500 Returns

Below, we show the 12-month returns of the S&P 500 Index after key ‘overbought’ or ‘oversold’ conditions in the market as indicated by the RSI:

DateRSIShiller PE Ratio*S&P 500 Index 12-Month Return
Jul 15 200220239.4%
Dec 4 200673274.5%
Oct 13 200815167.3%
Feb 7 201175231.9%
May 13 2013752316.1%
Jan 8 20188933-7.2%
Mar 16 2020222566.3%
May 3 202172370.0%

*Measured by the average inflation-adjusted earnings of the S&P over 10 years

As the above table shows, following each period of extremely oversold territory in the RSI, the S&P 500 Index had positive returns.

In fact, the S&P 500 Index had the strongest one-year returns following the COVID-19 crisis of March 2020, with over 66% 12-month returns. During the time of extreme fear, the RSI sank to deeply oversold territory before sharply rebounding.

Interestingly, following periods of extremely overbought conditions in the market there was a range of positive and negative performance. Most recently, before the peak of the last cycle in 2021, the S&P 500 Index spent roughly 9 months in ‘overbought’ territory before declining into 2022.

The Relative Strength Index in 2022

With the economy in uncertain territory, how does the RSI look today?

In early June, following a bleak consumer sentiment announcement, the RSI fell to 30, hovering on oversold territory. Since then, it has risen closer to 40 as consumer sentiment and perspectives on economic conditions have slightly improved.

However, whether or not the RSI will continue on this uptrend remains to be seen.

For the remainder of 2022, market sentiment, which may be shaped by the coming GDP and inflation figures, could push RSI into oversold territory once again. As a bright spot this may be good news—reinforcing a turning point in the market.

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