The CPI and the M2 follow each other pretty closely. However, I have noticed that prices never seem to rise as much as the volume of money in circulation. I am assuming this is because of increases in the overall valuation of the economy (GNP growth) in proportion to the money. Is this a correct assumption?
It seems to me that, if it were, you could simply subtract the rate of GNP growth from the rate of monetary growth to isolate a price inflation rate.
Thoughts?
The Rev