prices. underlying inflation – which relates more to domestic price pressures – continues to remain subdued, as unutilised resources still weigh on wage and price growth. in fact, the annual rate of hicp inflation excluding food and energy has mostly remained below 1 % since late 2013. today, an important element keeping underlying price pressures subdued is muted wage dynamics, which are shaped by many factors. besides weak productivity developments, the significant degree of remaining labour market slack acts to contain wage growth. furthermore, the process of setting wages is to some extent backward - looking in a number of euro area countries, reflecting formal and informal indexation mechanisms. 4 additionally, the timing of wage negotiations plays a role in postponing the point in time when growing confidence that inflation is approaching the ecb ’ s intended medium - term level starts to become more visible in aggregate wage figures. moreover, weak wage growth could also reflect previous downward wage rigidities : difficulties in reducing wages during earlier stages of the crisis may result, symmetrically, in a slower upward adjustment of wages as labour market conditions improve. 5 overall, while we are certainly seeing a firming, broadening and more resilient economic recovery, we still need to create a sufficiently broad and solid information basis to build confidence that the projected path of inflation is robust, durable and self - sustained. first, underlying inflation pressures still give scant indications of a convincing upward trend as domestic cost pressures, notably wage growth, remain subdued. and, second, the economic recovery and the outlook for price stability remain conditional on the very substantial degree of monetary accommodation, including our forward guidance. without this support, the progress towards a sustained adjustment that we see in our projections will likely be slower or even stall. at our last policy meeting in april, the governing council took into account all available information and concluded that there was insufficient evidence to warrant a scaling back of the exceptional degree of monetary accommodation. we also reasserted our forward guidance, which is structured around conditionality and sequencing. looking ahead to our policy meeting in june, the governing council will draw on the latest information and will have new projections as well as an updated assessment of the distribution of risks surrounding the economic outlook. 2 / 4 bis central bankers'speeches challenges and opportunities for the european banking sector almost ten years have elapsed since the turn of the financial cycle. while european banks still face a number of challenges stemming from the financial crisis, the firming economic recovery presents opportunities for them. overall,

dynamics and supported domestic demand. since june 2014, bank lending rates for both euro area households and non - financial corporations have fallen by around 110 basis points. lending rates for very small loans, which can be taken as a proxy for loans to small and medium - sized enterprises ( smes ), have declined by over 180 basis points. the significant improvement in funding conditions for smes is especially encouraging as they provide two - thirds of total private sector employment in the euro area. heterogeneity of lending rates across countries has also fallen sharply, indicating that our non - standard measures have been particularly effective in counteracting bank funding and financial fragmentation in some jurisdictions. for example, the difference between the median lending rate for firms in countries that were severely affected by the crisis versus other countries has narrowed by about 100 basis points over this three - year period. 1 / 4 bis central bankers'speeches the sharp reduction in bank lending rates has been accompanied by easier access to funding, as recent surveys have shown. 2 these positive developments have been supported by the second series of targeted longer - term refinancing operations, as a result of which banks are passing on the favourable funding conditions to their customers. 3 moreover, these improvements are not limited to interest rates : bank lending volumes have also been gradually recovering since early 2014. market - based funding conditions, too, have improved significantly in response to the corporate sector purchase programme launched in june 2016. the easing of financing conditions has underpinned the recovery in domestic demand, which is now the mainstay of growth in the euro area. as the unemployment rate continues to decline despite a rise in labour force participation, households ’ real disposable income is improving. given the broadly stable savings rate, increased labour income is translating into higher private consumption expenditure. business investment is also picking up as a result of the favourable financing conditions, the need to modernise the capital stock after years of subdued investment and strengthening corporate profitability. from today ’ s point of view, there are signs of a stronger global recovery and a pick - up in international trade. the more synchronised economic upswing across regions should further support the euro area recovery. as for price developments, after hovering at levels well below 1 % for three years, with occasional dips into negative territory, euro area headline inflation has again edged higher towards the end of last year and reached 1. 9 % in april. this upward movement of inflation mainly reflects increases in energy and food