Thursday, 25 October 2012

Euro area Monetary Base & Money Supply (as of 30.09.2012)

The European Central Bank (ECB) reported its monetary statistics for the euro area for the period ending September on 25 October 2012.

Base money continued to increase massively on last year, but over the past seven months it has been relatively stable. The M1 monetary aggregate continued to increase on last year, but at a slightly slower pace than last month. It declined on last month for the first time in five months. The M2 continues it upward climb at a fairly steady rate, but at about half the average YoY growth rate since 1999 (3.24% for the month vs 6.36% average). Base money, M1 and the M2 were all lower than last month, but all are close to their all-time highs.

The M1 Money Multiplier continues to remain significantly lower than its median (35.07% lower as of September) and if (when?) it starts converging to its historical median, the increase in M1 money supply will be significant. As an example, if the median multiplier of 4.46 was applied to September base money, M1 would have been €7,739,406 million or 1.5 times higher than the €5,025,156 million reported. If this was to happen, it would lead to massive consumer price inflation if it ever were to happen. As mentioned in this report last month, the euro area and the ECB therefore face a similar problem to that of the U.S. (see here).

Base Money (M0). YoY base money increased by 40.90% from €1,232,234 million in Sep-2011 to €1,736,211 million in Sep-2012. On a monthly basis base money decreased by 1.70%.

M1 Monetary Aggregate. YoY M1 increased by 4.99% for the month from €4,7886,513 million in Sep-11 to €5,025,156 as of Sep-2012. Compared to last month, M1 decreased by 0.40%.

M1 Money Multiplier (M1/Base Money). The multiplier for the month was 2.89 which was 25.49% lower than Sep-2011 and 35.07% lower than the median. On a monthly basis the multiplier increased by 1.32%.

M2 Monetary Aggregate. M2 increased by 3.24% YoY to €8,869,498 million. On a monthly basis it decreased by 0.09%.

M2/Base Money. The multiplier for the month was 5.11 which was 26.73% lower than Sep-2011 and 41.34% lower than the median. On a monthly basis the multiplier increased by 1.64%.

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