- on - year change in the harmonised index of consumer prices ( hicp ), particularly in recent weeks. in october, annual inflation increased to 2. 5 %, according to a provisional estimate, from 2. 1 % in september. the oil price shock may feed through the economy and generate further indirect effects in the coming months. this is indicated by developments in producer prices, which showed a year - on - year increase of around 5 % in september. on the whole, however, the information available so far does not suggest that stronger underlying inflationary pressures are building up in the euro area. wages have grown at rates of around 2 - 2½ % over recent quarters. this trend should persist for some time in view of the high level of unemployment in the euro area. moreover, unit labour cost growth has been low ( 2. 0 % in 2003, coming down to around 0. 7 % in the first half of 2004 ) and it can be expected that it will be contained in the coming quarters by moderate wage developments and labour productivity gains. notwithstanding these encouraging developments, there are still several upside risks to the outlook for price stability. these risks are mainly associated with oil price developments, possible new increases in indirect taxes and administered prices, and potential second - round effects stemming from wage and price - setting behaviour. the rise in measures of long - term inflation expectations in the euro area in the course of this year is also a cause of some concern. in addition, our monetary analysis points to upside risks to price stability. since mid - summer, the dynamics of m3 have strengthened again, mainly reflecting continued strong demand for transaction balances, which are included in the narrow aggregate m1, the most liquid component of m3. the acceleration of money growth is driven by the stimulative effect of the historically low level of interest rates in the euro area. the low level of interest rates is also fuelling private sector demand for credit. in particular, the growth rate of loans for house purchase continues to rise in the euro area and is now approaching double digits. this goes hand in hand with relatively fast rises in real estate prices in many euro area countries. in recent months, the annual rate of growth of loans to non - financial corporations has also picked up. over the past few years, m3 growth has been very strong in the euro area, partly as a consequence of flight - to - safety portfolio shifts out of stock markets in the period of heightened stock market volatility between 2001 and

common european objective of creating a truly transparent and integrated european financial market in line with the single market agenda. the eurosystem will continue to play an active role in the payment industry by offering several types of service and infrastructure to the financial market. it has proven that it is capable of managing large - scale facilities and now provides a borderless core infrastructure for real - time settlement in central bank money with target 2. furthermore, a medium - term project for the next generation of collateral management has been launched under the name of “ collateral central bank management ” ( ccbm2 ), the objective of which is to consolidate and enhance the efficiency of the eurosystem ’ s collateral management systems to the benefit of eligible counterparties. currently, there is a public consultation on the draft ccbm2 user requirements under way, in which market participants have been invited to provide their comments by 5 may 2008. let me also elaborate on the new target2 securities ( t2s ) project. the t2s project is the eurosystem ’ s proposal for making cross - border securities settlement transactions in central bank money as secure, efficient and cheap as domestic settlement transactions are today. t2s will build on and benefit from the newly released target2 system thereby combining cash and securities settlements – in real time – within a single european infrastructure. this will be europe ’ s single “ pipeline ” settlement system, a system similar to those that have already been implemented by other economic areas. i firmly believe that t2s will contribute to speeding up market integration and fostering the necessary competition in europe, to the benefit of financial participants and the citizens of europe. the t2s project will act as a driver to remove even more barriers of the kind already identified by the giovannini group, as well as help users to identify the irreducible costs of unresolved barriers in the new efficient borderless settlement environment. this project will also advance the european harmonisation process, creating opportunities for further cost savings and allowing market participants to easily select and choose post - trade partners irrespective of their location within the single market. the impact of t2s on harmonisation is already being felt, building on the valuable work carried out by the csds. the harmonisation process goes far beyond pure settlement activities and will increase the pressure for swift action to harmonise practices, especially in relation to corporate activities, taxes, laws and regulations. the dynamic and second - round effects of t2s will pass through the