The money supply is the total amount of monetary assets available in an economy at a specific time. There are different ways to calculate the amount of money in an economy and M3 is the most broad definition. This is important because there is strong empirical evidence of a direct relation between money supply growth and long-term price inflation, at least for rapid increases in the amount of money in the economy.
The interesting thing is that the amount of money in the Dutch economy has been declining for over 2 years now. I guess it has to do with people using their savings to pay down debt on their mortgages and other types of loans.
Not surprisingly inflation in the Netherlands is low. Last June it was only 0.9% according to CBS.
M3 Netherlands Total Amount in Euro’s
M3 Netherlands Year over Year Change
Vincent Foster shared a chart today on Twitter that shows that inflation (CPI) in the US is now at the lowest point since 1965 if you exclude the short deflationary period in 2008 and 2009. Inflation is at this moment only 1% year over year.
Today the new inflation numbers of the Dutch statistical bureau CBS arrived. According to CBS annual Dutch inflation is now at 2.9%. The main cause for this is the fact that the Dutch government decided to increase the value added tax (VAT) rate in october 2012. (credit: chart)
If you look at the longer term inflation is near the highest point in 10 years. It is even higher now then it was for a big part during the 1990’s. According to CBS Dutch inflation averaged 1,89% during 2002 and 2011. Between 1992 and 2002 inflation averaged at 2.61%. The little peak of 4,5% in 2001 was caused by an increase of the Dutch VAT rate.
Because of these VAT rate hikes inflation in The Netherlands is now double that of the European average. PDF