Euro zone M3 speeds up, no inflation threat

Euro zone M3 money supply growth sped up in September, defying expectations of a slowdown and giving credence to the European…

Euro zone M3 money supply growth sped up in September, defying expectations of a slowdown and giving credence to the European Central Bank's view that liquidity was ample in the euro area.

The ECB said today annual M3 growth rose to 7.4 per cent from 7.0 per cent in August, compared with the consensus forecast of 6.7 per cent.

The less-volatile M3 three-month moving average held flat at 7.1 per cent, remaining well above the 4.5 per cent benchmark for the bank's inflation harbinger.

But M3 posed no risk to inflation and need not delay an ECB rate cut, said Mr Julian von Landesberger at Hypovereinsbank.

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"Unexpectedly high, it fits into the picture we have seen a number of times this year of weak stock markets and strong money growth, reflecting uncertainty at financial markets," he said.

"But this in no way signals risks to price stability. If the economy doesn't improve there will be no price pressure from ample liquidity."

The ECB has made clear that the weak economy made it unlikely that fast M3 growth, inflated by investor flight from tumbling stockmarkets into assets captured by the M3 aggregate, would translate into a rise in consumer prices.