The annual growth rate of M3 accelerated further in February. M3 money supply growth rose from 2.5% Y/Y to 2.8% Y/Y, while the consensus was looking for a slowdown to 2.4% Y/Y. The lending data weakened again after an improvement in January. The annual growth rate in loans to the private sector slowed from 1.1% Y/Y to 0.7% Y/Y, as the monthly flow dropped by €11B. Loans to households stayed unchanged from the previous month, while the annual growth rate slowed from 1.3% Y/Y to 1.2% Y/Y. Loans to non-financials dropped by €3B and the annual growth rate slowed significantly too (from 0.7% Y/Y to 0.3% Y/Y). While the M3 data look encouraging, the lending data are less so, suggesting that the ECB’s 3-yr LTRO is not yet helping to stimulate lending. In January, there was some early optimism, but as the impact materializes of course only with a lag, the coming months will provide us with further evidence.
According to the preliminary estimate, the annual rate of German inflation eased from 2.5% Y/Y to 2.3% Y/Y in March, reversing the increase in February. The outcome was exactly in line with expectations. On a monthly basis, inflation rose by 0.4% M/M led by higher prices for clothing and shoes and transportation. Prices for leisure and entertainment and hotels and restaurants dropped the most in March. It is an encouraging sign that the downtrend in German inflation resumes after a temporary pause in February. In the coming months however, much will depend on the development in oil prices, which will probably limit the downward trend in inflation.