The growth of the money supply is an important variable in interpreting the outlook for the business cycle and inflation in the context of the monetary policy of the European Central Bank (ECB). This is because over time, inflation in the euro area, that is the rise of the average price level, depends in part on the growth of the money supply
The ECB distinguishes three measures for the money supply, called monetary aggregates, that differ in terms of liquidity, i.e. the ease with which assets may be used to make payments. The most liquid monetary aggregate, called M1, consists of banknotes and coins in circulation and checking accounts. Money in M1 can be readily used to make payments. Thus it seems logical that fluctuations in M1 should be strongly correlated with developments in economic activity.