European money supply growth accelerated unexpectedly in October

Money-supply growth in the euro region accelerated more than economists forecast in October, to the fastest pace in more than 28 years, adding to the European Central Bank's inflation concerns. M3 money supply, which the ECB uses as a gauge of future inflation, grew 12.3% from a year earlier, after gaining 11.3% in September, the Frankfurt-based bank said today [28 Nov 2007]. That's the highest rate since July 1979. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings. The M3 growth rate has exceeded 4.5%, the level the ECB still deems non-inflationary, every month since May 2001. [1]

The ECB said Nov. 23 it will continue to make additional cash available to banks to "counter the re-emerging risk of volatility" in money markets. ECB council member John Hurley said yesterday that the disruption in credit markets "is still very much ongoing and is likely to persist, at least into the early part of 2008." [2]

"The current conjuncture seems to point to an uncomfortable, though temporary, combination of higher inflation and somewhat slower economic growth in the coming months," ECB Vice President Lucas Papademos said this week. [3]

[1] Interesting that a. ECB looks at M3 and b. deems 4.5% M3 non-inflationary.
[2] "Making additional cash available" sounds, well, inflationary.
[3] Higher inflation + slowing/stagnant economic growth = stagflation.

(2007-12-02 22:20:21 SGT) [Biz] Permalink

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