Eurozone in Deflation; Monetarist Mouthpieces Will Scream

Courtesy of Mish.

Forget all the talk about CPI or as they call it in Europe HIPC (harmonized index of consumer prices) floating just under 1%.

The true measure of inflation is credit expansion. And for the second month, credit contracted in the Eurozone.

Reuters reports Euro zone lending contraction compounds ECB headache.

Lending to households and firms in the euro zone fell again in January and money supply growth remained subdued, adding to pressure on the European Central Bank to take action next week to support the economy.

The ECB has cut interest rates to a record low, pumped extra liquidity into the banking system and announced a fresh government bond purchase program, but the measures have so far not managed to unclog lending to the real economy.

Euro zone inflation is also running at only 0.8 percent – far below the ECB’s target of just under 2 percent.

Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December.

Euro zone M3 money supply – a more general measure of cash in the economy – grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December.

Monetarist Mouthpieces Will Scream

Credit contraction news will have all the monetarist mouthpieces screaming yet again.

Ignore them.

Stepping on the gas pedal with QE will not do a damn thing except create an even bigger asset bubble in European equities.

When bubbles pop – and they always do – the only thing monetarists will have to offer is still more monetary stimulus….

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