Swedish, Euro Area Monetary Inflation Decelerates

Euro area money supply growth fell again in June, with M2 growth falling to 9.4%, the lowest since May 2007. However, 9.4% is still far too high.

Swedish money supply growth decelerated far more dramatically, with M2 growth falling to 7.4%, the lowest since June 2005. During the period between late 2005 and early 2008, M2 growth fluctuated between 10% and 15%. Seasonally adjusted monthly values aren't available so meaningful 3 or 6 month growth rates can't be calculated, but it seems safe to say that had such numbers been available, they would have been even lower than 7.4% at an annualized rate.

The fact that monetary growth decelerates weakens the case for further interest rate increases if the trend continues, particularly in Sweden. However, given the high money supply growth rates experienced so far and given the usual time lags, price inflation will continue to remain high for a while. On the other hand, the combination of decelerating nominal money supply growth and rising price inflation implies an even sharper deceleration of real money supply growth, which in turn implies an increased risk of a recession in Europe.