The End of Inflation

Analyzing inflation as a change in the value of a currency, rather than changes in prices of goods and services, provides perspective on three fundamental sources of inflation.A Money Value Formula produces a significant statistical fit with forward long-term inflation rates using long lags of monetary aggregates with inflation variability due almost entirely to fluctuations in aggregates. Inflation Elasticity, the responsiveness of inflation to monetary stimulus, is derived and becomes increasingly inelastic at a geometric rate, highlighting central banks' difficulty attaining inflation targets.Short-term variability of inflation is a function of foreign exchange fluctuations explaining over half the variability of inflation for the major advanced economies since 1995. Money Value Formula computations of currencies' unit value produces estimates of foreign exchange rates that explain a very large amount of their variability.The Formula isolates and identifies non-monetary factors such as population growth and Hotelling interest rate effects that combine to produce a base level of inflation.Since 1995 monetary stimulus has been ineffective spurring inflation for advanced economies. Foreign exchange rates for major currencies fluctuate with no long term trend. Non-monetary factors now principally determine long-term inflation. Projected population growth decreases in advanced economies suggest continued inflation declines, which will be exacerbated if recent declines in natural interest rates persist