They are, of course, weakly correlated. If the US government dropped one million dollars cash into everyone's yard via helicopter, we would probably have some inflation.

But contrary to sibling poster, economists have known for many decades that it is only a weak correlation and plenty of other forces are at work. The weak inflation resulting from QE was predicted by mainstream economics and does not come as any surprise. This is nothing specific to the US economy - Japan and the EU are similar real-world examples if you don't care for the economics and the modeling.

Japan is a fine example actually - 15 years later, Japan is, as expected, still not seeing some kind of phantom, invisible-hand "correction" causing massive inflation.

> My pet theory is that money supply and inflation no longer have much of a correlation. In fact, they might never have.

They have stronger correlations in small country economies. The US economy is sort of uniquely positioned in the world and that makes its exception and more complex. I think that with the US economy is that the repercussions of actions are delayed because the interconnections slow reactions down -- although this also lets things get unsustainable before the correction actually takes place.

The state of the economy would cause deflation, were it not for rigidity in nominal prices, wages, and interest rates. The expansion of the money supply is mostly just backfilling against deflation, while causing asset prices to inflate in some areas.