This assessment is also reflected in the December 2012 eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation of 2.5 percent for 2012, between 1.1 percent and 2.1 percent for 2013 and between 0.6 percent and 2.2 percent for 2014. Compared with the September 2012 ECB staff macroeconomic projections, the projection range for 2013 has been revised downwards.
In the Governing Council's assessment, risks to the outlook for price developments are seen as broadly balanced, with downside risks stemming from weaker economic activity and upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices.
Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued, taking into account developments over several months. Most recently, the annual growth rate of M3 increased to 3.9 percent in October, from 2.6 percent in September, while M1 growth accelerated to 6.4 percent from 5.0 percent over the same period. These developments are partly due to a specific transaction leading to an increase in overnight deposits belonging to the non-monetary financial sector. At the same time, deposits from households and non-financial corporations also rose in October. Overall, more observations are needed to distinguish between shorter-term volatility and more lasting factors.
Unlike in the case of monetary developments, there has been little change in credit growth. The annual growth rate of loans to the private sector (adjusted for loan sales and securitization) remained at -0.4 percent in October, unchanged from September. But this development reflects further net redemptions in loans to non-financial corporations, which led to an annual rate of decline in these loans of -1.5 percent, down from -1.2 percent in September. The annual growth in MFI lending to households remained unchanged at 0.8 percent in October. To a large extent, subdued loan dynamics reflect the weak outlook for GDP, heightened risk aversion and the ongoing adjustment in the balance sheets of households and enterprises, all of which weigh on credit demand. Furthermore, in a number of euro area countries, capital constraints, risk perception and the segmentation of financial markets restrict credit supply.