Globally Money Growth Recovers, Moderates – Still Weak

Money supply growth is picking up globally except, of course, in Japan. In the European Monetary Area, money supply is up 0.6% over 12 months, it's up at a 2.1% annual rate over six months, and it's rising at a 2.8% annual rate over three months. Credit to residents in the European Monetary Area also is making a recovery, with 12- and six-month growth rates at 0.3% and with the three-month growth rate at an annual rate of 0.8%. Private credit is growing just slightly faster, with the three-month growth rate at 1.2% annualized.

In the United States, M2 money supply growth has accelerated from 0.6% over 12 months to 2.5% pace over six months and to a 4.2% annual rate over three months. Money growth in the United Kingdom, similarly, is accelerating from 0.3% over 12 months to 4.1% annualized over six months to 6.1% annual rate over three months.

Japan is the exception, with growth over 12 months at 1.8%, slowing over six months to a 1.6% annual rate and then slowing further over three months to a 0.5% annual rate.

Adjusted for the effects of inflation, money supply in the monetary union is gradually picking up as it moves from a decline of 1.9% over 12 months to an increase at a positive annual rate of 0.6% over three months. In the U.S., M2 growth is -2.6% in real terms over 12 months but flips the switch to grow at a 1.3% annual rate over three months. In the U.K., money supply M4 falls at a 3.3% annual rate over 12 months but then grows at a 2.5% annual rate over three months. Japan shows real money growth at -1% for 12 months, then at -0.4% over six months and at -3.1% annualized over three months.

Globally inflation has been working its way lower. The process of disinflation has been uneven and has clearly slowed down. In the United States, the change in the year-over-year inflation rate measured by the PCE shows an increase of 0.1% over six months but a decline of 0.9% in the annual rate over 12 months. In the euro area, over six months the HICP has accelerated by 0.2 percentage points compared its year-over-year rate today with six-months ago. The comparison of year-over-year rates in May to a year ago shows a decline of 3.5 percentage points in the inflation rate. The U.K. shows a decline in the annual inflation rate over six months of 1.5 percentage points while compared to a year ago inflation in the U.K. is lower by 5.1 percentage points. That is a big shift-a major slowdown- in the rate of change of inflation’s fall. Japan's inflation today compared to six-months ago is unchanged while Japan’s year-over-year inflation rate today compared to what it was 12 months ago is lower by 0.4%.

These comparisons show inflation progress has been substantial but at the same time undergoing process is in transition The U.S. and the European Monetary Union both have significant inflation declines compared to a year-ago but are not showing any progress in year-over-year inflation over the last six months. The U.K. is showing inflation progress over six months, but it's substantially less than the progress that it had made year-over-year. Japan with inflation running barely over its target and with mixed results on the headline and core inflation rates shows no change in inflation over six months and a modest decline in the annual inflation rate today compared to a year ago. These factors are going to put central banks on guard. We have already seen the Federal Reserve stick its neck out for three rate cuts at the end of last year and then pull back to a position where now it sees, maybe one cut, in the immediate outlook - and that may even be in jeopardy.

Monetary policy is increasingly becoming a political football. In the U.S., the election season is approaching with presidential debates set for tonight and the presidential elections coming in November. The U.K. has snap election called, as does France. A relatively sharp turn towards more conservative views among representatives in the EU has created a jolt to the political process there. Time will tell if that has any implications for policy particularly for monetary policy in the EMU.