Jean-Claude Trichet, President, European Central Bank, speaks during the session 'Rethinking the Eurozone' at the Congress Centre at the Annual Meeting 2010 of the World Economic Forum in Davos, Switzerland, January 28, 2010. © World Economic Forum swiss-image.ch/Photo by Monika Flueckiger

Eurozone annual inflation is expected to be 1.0% in January 2010 according to a flash estimate issued by Eurostat, the statistical office of the European Union. Separately, reports from the European Central Bank (ECB) showed that bank lending will remain tight in Q1 2010 and M3 money supply growth remained negative in December.

Eurozone annual inflation was 0.9% in December 2009.

The inflation target of the ECB is "below but close to 2%."

Computation of flash estimates: Eurozone inflation is measured by the Monetary Union Index of Consumer Prices (MUICP). To compute the MUICP flash estimates, Eurostat uses early price information relating to the reference month from Member States for which data are availableas well as early information about energy prices.

The flash estimation procedure for the MUICP combines historical information with partial information on price developments in the most recent months to give a total index for the Eurozone. No detailed breakdown is available. Experience has shown the procedure to be reliable (18 times exactly anticipating the inflation rate and 6 times differing by 0.1 over the last two years).

Bank Lending Survey

The ECB  said today in its quarterly Bank Lending Survey that Eurozone banks expect to continue tightening their credit rules for firms and households in the first part of 2010.

A net 4% of banks said they saw themselves tightening credit standards to firms in the first quarter compared with the net 3% that toughened lending requirement in Q4 of 2009.

"The net tightening of credit standards on loans to non-financial corporations declined to 3 percent in the last quarter of 2009... which was somewhat above the expectation, at the time of the previous survey round," the ECB said .

"Looking forward, euro area banks expect some further tightening of credit standards on loans to NFCs in the first quarter of 2010, with net tightening potentially worsening slightly, to 4%,"it added

Credit/Money Supply

The annual rate of change of M3 -- a broad measure of money and credit in the Eurozone economy --  stood at -0.2% in December 2009, compared with -0.3% in November 2009. The three-month average of the annual rates of change of M3 over the period October 2009 -
December 2009 decreased to -0.1%, from 0.6% in the period September 2009 - November 2009.

The ECB's reference rate for M3 growth is +4.5%, signalling that inflation pressures are currently subdued.

The annual rate of change of loans to non-financial corporations decreased to -2.3% in December, from -1.9% in November. The annual growth rate of loans to households increased to 1.3% in December, from 0.5% in the previous month. The annual rate of growth of lending for house purchase increased to 1.5% in December, from 0.3% in the previous month. The annual rate of change of consumer credit increased to -0.1% in December, from -1.0% in November, while the annual growth rate of other lending to households
decreased to 1.7% in December, from 2.5% in the previous month. Finally, the annual rate of growth of loans to non-monetary financial intermediaries (except insurance corporations and pension funds) increased to 5.5% in December, from 0.3% in the previous month.

The member countries of the Eurozone are Belgium, Germany, Ireland, Greece, Spain, France, Italy, Cyprus, Luxembourg, Malta, the Netherlands, Austria, Portugal, Slovenia, Slovakia and Finland.