Why hasn't Quantitative Easing caused inflation?

Often Socialist Party analyses are confirmed by other observers.

In the weekend edition of the Financial Times Ken Fisher wrote:
“Only growth in money in circulation can stimulate, inflate, currency debase or whatever else you think it does to the economy.”
His point is that "quantitative easing" (QE) has not led to an increase in money in circulation and so has not done any of these things.

This reflects the view of the SPGB’s discussion at its recent annual conference that QE had not led to inflation/currency depreciation/a rise in the general price level (all different ways of describing the same thing).

Economics textbooks and official statistics have various definition of money, ranging from "base money" (formerly M0) through M1, M2, and M3 to M4 (which is base money plus various degrees of bank lending and so what they call "credit money" or "bank money"). The difference is that while M0 (base money) is issued by the government, M1. M2, etc depend on how much banks and other financial institutions lend.

"Base money" is made up of two elements: notes and coins in circulation plus "reserve balances" held by commercial banks at the Bank of England. QE is popularly described as the Bank of England "printing more money". In one sense it is, but this is misleading if the "money" that is "printed" is understood as notes and coins. In fact, with QE, it is the commercial banks' "reserve balances" (and they are created electronically rather than literally printed). But these are not "money in circulation" (not even "bank money")

Under QE, or to give it its official name the Asset Purchase Facility, the Bank of England buys bonds (mainly government bonds) off banks and other institutions and pays for this with "reserve balances". So what happens is that this part of base money increases, but the part that causes inflation if issued in excess of the economy's requirements does not. In other words, QE does not increase "money in circulation". That's why it hasn't caused inflation.

It hasn't led to an increase in M1, M2, etc either, as the Bank may have intended, but that's because, with a depressed, flat-lining economy, the opportunities for commercial banks to lend has not increased. Also, the amount of notes and coins in circulation has increased as part of the official policy of trying to create 2% a year inflation, but this has nothing to do with QE.

Adam Buick