Thünen Lecture by Isabel Schnabel, Member of the Executive Board of the ECB, at the annual conference of the Verein für Socialpolitik

Regensburg, 25 September 2023

In the two and a half years following the outbreak of the pandemic, the sum of currency in circulation and overnight bank deposits in the euro area, referred to as M1, increased by over 30%. Over the same period, inflation accelerated from 1.2% to 9.1%. It peaked at 10.6% in October 2022.

The concurrence of these developments sparked a renewed debate on the relationship between money growth and inflation. Some commentators saw the rise in inflation as proof of the validity of the quantity theory of money, arguing that nominal wages and prices could not keep on rising if money did not expand correspondingly.^[1] For others, the correlation was spurious and held little economic significance.^[2]

In my remarks today, I would like to discuss the role of money in explaining the recent surge in inflation in the euro area. I will…