But Inflation is a Monetary Phenomenon…

The rapid rise in the monetary base is still completely held in check by the banks holding the money on their balance sheets as reserves (in anticipation of future losses). This is not inflationary. However, another source of inflation might be coming soon.

The US is trying to apply pressure to make China increase the relative value of the renminbi. When they do, that will make the cost of goods from China rise. It will also give China more buying power. As China grows, with increased buying power, they will consume more oil. Many people expect long term price increases in oil. Adding in increased Chinese buying power, and the price could rise quite quickly. This will probably increase the costs of all goods purchased in the US.

Prices are likely to rise. It will be inflation, even in the Austrian or Chicago School sense. It will be a monetary phenomenon, but it won’t be because of extra dollars flooding the economy. It will be because we told China they should increase the value of their currency and buy more stuff. Making the renminbi stronger has many of the same effects as making the dollar weaker.

(source: St. Louis Fed: FRED Graph)