Hope for Declining Inflation in the Eurozone
Unexpected Decline in M3 Money Supply and Slowing Credit Growth as Positive Indicators

Signs of decreasing inflation in the Eurozone are intensifying. According to the European Central Bank (ECB), the M3 money supply unexpectedly fell by 0.4% in July. This is the first decline of this kind since 2010. Experts surveyed by the Reuters news agency had actually expected a stagnant money supply. The M3 money supply includes not only cash and deposits in current accounts but also money market papers and bonds, and is considered an important indicator for future inflation development.
In parallel, the Eurozone recorded a slowdown in credit growth to 2.2% in July. In the previous month of June, banks had granted 3.0% more loans to companies than in the previous year. "The monetary environment suggests significantly declining inflationary pressure," commented Ralf Umlauf of Helaba. Both key figures, both the money supply and credit growth, play a crucial role in the ECB's monetary policy.
The next ECB meeting is scheduled for September 14. There, the base rate will be decided, which has already been raised nine times since the summer of 2022 and is currently at 4.25%. ECB President Christine Lagarde left open whether further rate hikes or a rate pause could be pending. Recently, falling producer prices in Germany also indicated declining inflationary pressure.
For the upcoming Thursday, current inflation data for the Eurozone are expected. Experts predict that consumer prices could have risen by 5.1% in August. This would be a slight decline compared to July when the inflation rate was still at 5.3%. However, the ECB is aiming for an inflation rate of 2.0%.
The new data could thus play an important role in the ECB's upcoming decision on the monetary policy course. They could also be a sign for consumers and investors that the peak of inflation may have been passed and an easing of the economic situation is in sight.
