My CEO stated this graph is the primary reason for inflation but I dont fully understand why


[M1 (M1SL) | FRED | St. Louis Fed (](

In: 0

so that looks like it’s a graph of the money supply in circulation (ie in the hands of the general public)

how much something costs reflects it’s supply and also it’s demand and the ability for consumers to pay.

when more people have more money, things get more expensive, since each unit of money is less valuable. from 2020, the money in circulation went up by 4x. so prices went up as a result of everyone having more money. although each individual didn’t necessarily get 4x as much money.


It is a bit of a trick question. So the graph itself is kind of “see if you catch the obvious but miss the details”


See the explainer above from the same website which explains what happened in May 2020. The spike was caused by a redefinition of M1. There is no doubt that the US govt increased money supply overall because of the COVID stimulus package. Adding nearly 6 trillion into M2 from early 2020 to 2022 is a massive increase in money supply at the time when demand really couldn’t react due to pandemic related supply chain shocks and shutdowns.