Annual Report 2004

The Eurosystem Secures Price Stability
M3 Growth in the Euro Area
Annual change in %
10
9
8
7
6
5
4
3
1999
M3
2000 2001 2002 2003 2004 2005
Three-month moving average
Source: ECB.
Oil prices
fuel inflation
M3 growth sags
at the beginning
of 2004, quickens
from mid-2004
In the second half of 2004, inflation
came in at over 2% every month.
The contribution of the component
energy to inflation widened from
0.5 percentage point at mid-year to
0.8 percentage point in October
2004. However, no price pressures
emanated from developments within
the euro area itself, as wage increases
were still moderate and as the oil
price rise had not produced secondround
effects; moreover, given dampened
growth, this pattern was expected
to persist. Against this background,
the EurosystemÕs inflation
projections of December 2004 put
Euro Area Credit Growth
Annual change in %
10.5
9.5
8.5
7.5
6.5
5.5
4.5
3.5
1999 2000 2001 2002 2003 2004 2005
Total lending
Loans to the private sector
Source: ECB.
inflation at between 1.5% and 2.5%
for 2005 and at 1.0% to 2.2% for
2006.
TheexpansionofM3slowedfrom
6.5% at the beginning of 2004 to
4.9% in May 2004, reflecting above
all the normalization of investorsÕ
marked preference for liquid assets
as a result of their cautiousness from
2001 through 2003. Economic agents
regained market confidence and began
to reinvest in longer-term and
riskier assets. On the back of low interest
rates, M3 growth reaccelerated
from 5.3% in June 2004 to 6.4% in
December 2004. The low interest
rate level also boosted credit demand,
in particular for mortgage
loans, which is indicative of the real
estate price boom in some euro area
countries. In view of these developments,
the Governing Council of
the ECB cautioned that the stock of
excess liquidity and strong credit
growth represented not only a risk
to price stability, but could also entail
anexcessiveriseinassetprices.
20 ×
Annual Report 2004