It was once thought that the money supply was directly related to inflation, but they were never the same thing. The classic equation was MV = PY, and M (the money supply) and P (the price level) are different. They are only proportional (according to this equation) if everything else remains the same.
In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we care about it? Because it might have a real-world effect on us via price changes.
Gathering data about prices directly is a better way of understanding price levels (and inflation) than mucking around with less measurable quantities.
To the extent that the money supply matters, it's because it might result in higher prices in the future. But this doesn't seem to happen in any mechanical way. Just because people have money doesn't mean they want to spend it. In the classic equation, V (the velocity of money) can slow down.
This is particularly true when we are talking about institutions and rich people who already have savings. Higher numbers in their bank accounts doesn't automatically result in more spending, either by them, by the banks, or by companies whose stock prices get bid up.
It would matter more if the money went to people who actually need to spend it.
People being priced out of productive investments has consequences too. Those are not the same "the sky is falling, everybody is poor now!" consequences of consumer products inflation¹, but they exist and are important for a healthy society.
1 - What an incredible new definition of monetary inflation we have now, that can be split over real markets without any loss of meaning.
I think we agree on the point, but disagree in the definitions.
Money supply inflation might not directly influence price inflation, though we see price inflation in asset prices, such as stocks and properties.
My point is more on the government saying it needs inflation, when even without price increases inflation might be happening.
We have increasing productivity, cost has been falling, so if prices stay fixed, therefore no price inflation, the people are still paying more than they should.
The value of things have been falling, but prices haven't.
When the Federal Reserve said that a little more inflation is acceptable, they were talking about the Consumer Price Index.
It’s not that price increases are good in themselves, but that it would be good if people spent more, and if it results in prices being a little higher, this is okay.
In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we care about it? Because it might have a real-world effect on us via price changes.
Gathering data about prices directly is a better way of understanding price levels (and inflation) than mucking around with less measurable quantities.
To the extent that the money supply matters, it's because it might result in higher prices in the future. But this doesn't seem to happen in any mechanical way. Just because people have money doesn't mean they want to spend it. In the classic equation, V (the velocity of money) can slow down.
This is particularly true when we are talking about institutions and rich people who already have savings. Higher numbers in their bank accounts doesn't automatically result in more spending, either by them, by the banks, or by companies whose stock prices get bid up.
It would matter more if the money went to people who actually need to spend it.