Sunday, 2 December 2012

Euro area Monetary Base & Money Supply (as of 31.10.2012)

The European Central Bank (ECB) reported its monetary statistics for the euro area for the period ending October on 28 November 2012.

Base money continued to increase massively on last year, but over the last eight months it continues to be relatively stable. Compared to previous month it dropped 3.5% however, the biggest monthly drop since July 2010. The M1 monetary aggregate also continued to increase on last year and at 6.5% it was the biggest YoY percentage increase since August 2010 . It increased 1.3% on previous month. The M2 continues it upward climb increasing 4.6% on October last year, the largest YoY percentage increase since July 2009. The value of M1 and M2 both hit new all-time highs for the month, while base money was 5.6% lower than the all-time high hit in June this summer.

The M1 Money Multiplier continues to remain significantly lower than its median (31.80% lower as of October) 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 €7,468,010 million or 1.47 times higher than the €5,092,973 million reported. This would likely lead to massive consumer price inflation if it ever were to happen. As mentioned in this report two months ago, the euro area and the ECB therefore face a similar problem to that of the U.S. (see here).


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