Thursday, 16 August 2012

Euro area Monetary Base & Money Supply (as of 30.06.2012)

The European Central Bank (ECB) reported its monetary statistics for the euro area for the period ending June 2012 on 26 July.
Base money continued to increase rapidly Year-on-Year (YoY) while the monetary aggregates (M1 and M2) only increased modestly on last year at about half the historical average rate. The M1 money multiplier was again substantially lower than average and continued to decline rapidly on last year. If the Quantity Theory of Money holds, there is a real and significant risk in Europe (as in the U.S., see here) that inflation will kick in (with a bang) when the M1 money multiplier again starts to increase as the money supply then will increase accordingly. This inflation, all else remaining the same, will also erode the purchasing power of the euro relative to currencies in other countries with less inflation.

Base Money (M0). YoY base money increased by 56.0% from €1,122,369 million in Jun-2011 to €1,750,966 million in Jun-2012. On a monthly basis base money decreased by 1.3%.

M1 Monetary Aggregate. YoY M1 increased by 3.8% for the month from €4,715,014 million to €4,892,987 as of Jun-2012. Compared to last month, M1 increased by 0.4%.

M1 Money Multiplier (M1/Base Money). The multiplier for the month was 2.79 which was 33.5% lower than Jun-2011. On a monthly basis the multiplier increased by 1.8%.

M2 Monetary Aggregate. M2 increased by 3.3% YoY to €8,777,223 million. On a monthly basis it increased by 0.2%.

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