Has the Economy Become Inflation-Prone?

We fear a miss in tomorrow’s CPI, with the consensus expecting a very light 0.1%. Expectations for Fed rate cuts by year-end have already come in considerably, with only an 85% probability of a November cut – based on a new consensus that there will be no recession. Beyond the noise of a single data-point, we have to ask why our monetarist model is now forecasting CPI to keep rising over the coming year from below the Fed’s target, where it is now, eventually to exceed the Fed’s target – even though the money supply is growing at a paltry 2% year-over-year? For that matter, why didn’t deflation materialize when the money supply had it’s first-ever contraction in the history of the data. Is the economy more inflation-prone now for some reason? If so, a candidate explanation is ongoing fiscal stimulus, but that hasn’t been large enough to show up in money supply growth. Rising velocity isn’t a likely answer, because it has recovered from its pandemic trough only back to a long-standing secular downtrend.