Inflation Rates vs Interest Rates

While recent posts have myth-busted the narratives that money printing causes inflation and money printing drives up rates, even a quick glance at the same data shows that there is a stronger relationship between inflation and interest rates. The conventional view is that long-term rates move in response to inflation, although it is worth noting that long-term rates are less volatile than the inflation rates that drive them. Thus, the R² (or goodness of fit) is not that high, but there is a visible correlation nonetheless.

We’ll start with the world’s largest economy, the US:

And the Euro Area:

China:

Japan:

And finally, the UK:

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Disclosures & Disclaimers page for a full disclaimer.