Figures released this morning show that the annual rate of growth of the euro zone's money supply accelerated sharply last month. The European Central Bank monitors money supply growth as a key gauge of future inflation.
The euro zone's M3 money supply grew by 7.3% in May, substantially faster than the 6.8% recorded in April, the ECB calculated. The figures are seen by analysts as reducing the likelihood of a cut in euro zone interest rates.
The ECB closely monitors developments in the money supply when deciding the appropriate level of interest rates because it sees a link between the level of liquidity in the economy and future inflation.
The ECB calculates that the money supply needs to grow at around 4.5% each year to serve as a basis for non-inflationary economic growth. But M3 - which covers cash, overnight deposits, other short-term deposits, repurchase agreements, shares and units in money market funds and debt securities with a maturity of up to two years - has been growing much faster than that for a long time.
Because the monthly figures are subject to volatility, the ECB also calculates a three-month moving average for M3 growth. That, too, was higher than the bank would wish at 6.9%.
A breakdown of the latest M3 data showed that demand for loans in the private sector - a key yardstick for future inflation - picked up noticeably last month. Loans to the private sector grew by 7.65 in May, higher than the 7.4% recorded in April. And the annual rate of growth of lending for house purchase was also high at 10.1%.
