In October, euro zone M3 money supply growth slowed unexpectedly. M3 growth slowed from 3.0% Y/Y to 2.6% Y/Y, while the consensus was looking for a further increase to 3.4% Y/Y. The details suggest that the drop was mainly based in overnight deposits at banks. The lending data remain surprisingly strong. The monthly flow of loans to the private sector rose by €36 billion compared to €11 billion in the previous month. Loans to non-financials rose by 1.9% Y/Y (from 1.6% Y.Y), but the monthly flow slowed somewhat (from €19 billion to €7 billion). While the latest ECB lending survey showed a significant tightening in credit conditions and slowing demand, this is not yet reflected in the lending data. We believe however that we will soon see some deterioration in the lending data as banks are facing weakening liquidity conditions and economic climate is worsening too, which will probably start to weight on credit demand in the coming months.
According to the first estimate, German CPI inflation slowed from 2.9% Y/Y to 2.8% Y/Y in November, less than the expected as the consensus was looking for a drop to 2.7% Y/Y. On a monthly basis, CPI inflation stayed flat, while a decline by 0.1% M/M was forecast. The breakdown shows price cuts for leisure and entertainment, hotels and restaurants and transportation were offset by higher prices for seasonal food, household energy and heating oil. Inflation remains high and well above the ECB target, but the slowdown in activity and probably even a mild recession will push the inflation rate significantly down over the coming months, probably already from December onwards.