I personally prefer MZM as a measure of money supply in the U.S., and the fact that the movement was across a certain nominal threshold is of mostly symbolic nature, but it is still interesting that M2 rose above $10 trillion this week for the first time ever. M2 is up by 8.7% the latest year. MZM, which reached the $10 trillion mark May last year, is meanwhile up by 7.9% the latest year.
So, regardless of whether you look at M2 or MZM, money supply growth has been high. Despite this, the rate of consumer price inflation has declined the latest year while the dollar has rallied. The reason for this is of course that the European debt crisis has caused a big surge in money demand that has largely offset the effects of high money supply growth.
As long as the European debt crisis continues, and unfortunately it probably will for a while, we shouldn’t expect much of a pick up in U.S. price inflation despite the money supply numbers. However, when it ends demand for dollar assets will fall back and the lagged effect of the current monetary expansion will kick in.