Euro Monetary Growth

August data is out and the only monetary aggregate that has shown an increase has been the narrower M1: M2-M1, M3-M2, and lending aggregates all showed either reduced rates of growth or increased rates of decline.

From the report:

“Regarding the main components of M3, the annual growth rate of M1 increased to 5.1% in August 2012, from 4.5% in July. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) decreased to 0.8% in August, from 2.2% in the previous month. The annual growth rate of marketable instruments (M3-M2) decreased to -0.5% in August, from 4.3% in July”.

Usually a rise in M1 would imply a transfer of money from the wider aggregates meaning that consumers are holding more expenditure focussed money, as opposed deferred consumption or portfolio focussed money.   With all this central bank money supply creation it is extremely difficult to make sense of whether the distribution of money is intentional or anarchically random.   The fact that wider lending growth is still weak to negative suggests that at the moment the link between M1 and economic activity is not yet firing.

From the report:

“the annual growth rate of total credit granted to euro area residents decreased to 0.5% in August 2012, from 1.0% in the previous month. The annual growth rate of credit extended to general government decreased to 8.0% in August, from 9.4% in July, while the annual growth rate of credit extended to the private sector was more negative at -1.2% in August, from -0.9% in the previous month. 

The annual growth rate of loans to households stood at 0.2% in August, compared with 0.3% in July (adjusted for loan sales and securitisation, the rate stood at 1.0%, unchanged from the previous month). The annual growth rate of lending for house purchase, the most important component of household loans, stood at 0.8% in August, unchanged from the previous month. The annual growth rate of loans to non-financial corporations was more negative at -0.8% in August, from -0.4% in the previous month (adjusted for loan sales and securitisation, the rate was more negative at -0.5% in August, from -0.2% in the previous month). Finally, the annual growth rate of loans to non-monetary financial intermediaries (excluding insurance corporations and pension funds) was more negative at -3.4% in August, from -2.8% in the previous month.”

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