Figures released this morning show that growth in the euro zone's money supply, which the European Central Bank monitors as a key gauge of future inflation, picked up again last month.
The euro zone's M3 money supply grew by 8.8% in April, faster than the 8.5% recorded in March, the ECB calculated. This was also faster than economists had expected.
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 expand by an annual 4.5% to serve as a basis for non-inflationary economic growth.
But the M3 money supply, 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. This stood at 8.4% in the period from February to April, noticeably faster than the 8.1% recorded in the period from January to March.
The ECB could use the money supply data as an argument to raise its key interest rates, which it is expected to do in June.
