Eurozone money measures rose solidly again in August, suggesting improving economic prospects and initial success for the ECB’s June easing measures.

Broad money M3 rose by 1.0%, or 6.1% annualised, in July and August combined, while narrow money M1 surged by 1.9%, or 12.2% annualised.

Six-month growth of real (i.e. inflation-adjusted) narrow money M1 has risen from 1.6% (not annualised) in April to 2.6% in August, a solid pace by historical standards. Real M3 expansion has recovered from 0.1% to 1.2% over the same period, the latter reading being the highest since October 2012, ahead of an economic recovery in 2013 – see first chart.

The July-August M3 increase partly reflected a resumption of bank buying of government securities*, following the ECB’s June announcement of cheap fixed-rate funding via the TLTROs (targeted longer-term refinancing operations). M1 is driven by household and corporate demand for transactions money – the recent surge suggests rising spending intentions.

The ECB publishes a country breakdown of overnight deposits, comprising about 80% of Eurozone M1. The six-month rate of change of real deposits has strengthened in Spain and Italy, remained broadly stable at a solid level in France and Germany and weakened further in the Netherlands – second chart. These numbers can be volatile from month to month but narrow money growth appears to be on a higher trend across the periphery than in the core – third chart.

US six-month real narrow money growth was much higher than in the Eurozone at the start of 2014, signalling US economic and equity market outperformance. Current growth rates are similar, mainly reflecting a recent US slowdown.

*Bank purchases were €43 billion, seasonally adjusted, in July-August versus an M3 increase of €98 billion.