Whenever the conversation turns to inflation, you can usually wager at short odds that someone will quote Milton Friedman’s old dictum that inflation “is always and everywhere a monetary phenomenon.” At the peak of quantitative easing a couple years back, it sure was. M3 money supply posted a year-over-year growth rate of 26.9% at the apex of the meme stock, SPAC and NFT circuses. A short while later, the Street woke up to a 9-handle on year-over-year CPI, with a special hat tip to a supply chain muck-up like you can’t imagine. Or maybe you can imagine if you were in the market for an appliance during COVID-19.

How fast things go from one extreme to the next. M3 money supply, which is still calculated by the OECD, was down 4.0% in the year to May, the most aggressive plunge in the history of a data set that dates to the Eisenhower administration.

Well known at this juncture is the ISM Manufacturing PMI’s incessant sub-50 prints; June lugged in with a seventh contractionary reading in a row. Perhaps less appreciated is the date of the manufacturing PMI peak, which was a full 2.5 years ago, when it registered a blow-off 63.8 in March 2021. June’s 46.0 reading marked a 17.8-point slide from the cycle high, a descent that roughly matches the one witnessed during the turn-of-the-century recession, the global financial crisis and also the 2020 COVID-19 mini-depression. Unless there is some unknown fiscal stimulus forthcoming, this is the stuff of disinflation, if not temporary deflation.

Speaking of “D” words, a new ascent in the dollar relative to the yen is deflationary too. The currency markets have spent a chunk of the spring and summer sending the yen into a tailspin; Japan’s currency has weakened from ¥127 around the beginning of the year to ¥142 currently. Some market watchers are practically begging the Bank of Japan to sell dollars for yen to fend off another test of ¥150, a level that gave a freak to the Bank of Japan about a year ago. We don’t think that will happen. PPI measures that are critical to Japanese commerce—namely, its own PPI, along with those of the U.S., China and Korea—are all rolling over, hard. We think it portends a downside to the country’s 3.2% year-over-year core CPI, a sigh of relief for Kazuo Ueda, who hasn’t yet warmed his seat as head of the BoJ.

The dollar has also been strengthening against the Chinese renminbi, though maybe we can call it all a wash when you consider that both the pound sterling and the euro have been gaining ground against the greenback in 2023. That puts the dollar in the middle of the pack against major peers. If currency movements affect trade prices with some lag, its stance in the middle of the lineup is probably something like a net washout for the 2024 and 2025 inflationary impulse.

Maybe the name of the game is what is happening—or not happening—in domestic residential real estate.

In the Census Bureau’s “Current Population Survey” conducted in early May, it found that median asking rents for vacant units had popped 21% over the last year, from $1,255 to $1,462. A jaw-dropper. Peculiar, given that Redfin is reporting ever-so-slight rent deflation.

We think we know what is happening: the Census Bureau’s median is being dragged higher by “golden handcuffed” owners-turned-circumstantial landlords. Some people who are moving houses can’t bring themselves to throw away their existing 3% mortgage in what they view to be a 3%–6% inflation world. Some chunk of these amateur landlords, who would normally sell and move on, are posting four- and five-bedroom expanses for rent, artificially shocking the data upward. The reality, if you compare apples to apples: nationwide home prices are heading sideways-to-down, as are rents, clear into a disinflationary 2024.