Inflation Shock: The Worst Is Still To Come | Steve Hanke

Steve Hanke argues that core inflation remains above target because broad money growth exceeds the roughly 6% annual pace he considers consistent with 2% inflation, and says inflation will persist until money growth slows. He links falling inflation-adjusted wages over the past six or seven months to reduced purchasing power and affordability concerns, while noting that about 70% of respondents are dissatisfied with affordability and the cost of living.

Hanke says rising money supply is consistent with avoiding a near-term recession, while a significant change in money-supply growth may take 12 to 24 months to show up in nominal GDP. He also says interest rates will stay high until money growth slows, and that bank loans—including lending tied to AI investment and data centers—add to the money supply when funds enter checking accounts.

Hanke distinguishes AI-company investment funded with cash, which redirects existing savings, from commercial bank lending, which he says can create money without prior savings. Separately, he says rising stock portfolios support consumption through a wealth effect, estimating that each $100 increase in a portfolio induces about $3 in additional spending and that airline demand is relatively insensitive to the price increases discussed.

Persian Gulf crude exports had recovered from 19% of their February 27 level by April to about 85% by the discussion, while the host cited a Goldman Sachs estimate that September exports reached 19 million barrels a day, nearly 90% of the region’s overall oil-export recovery. Hanke says logistical bottlenecks keep landed physical-oil costs 35–40% above futures prices for most destinations, and argues that backwardation reflects scarce stored oil and a premium for prompt supply—not a forecast of falling prices.