gradually in 2009. risks to price stability at the policy - relevant medium - term horizon remain clearly on the upside and have increased over the past few months. these risks include notably the possibility of further increases in energy and food prices and of increasing indirect effects on consumer prices. there is a very strong concern that price and wage - setting behaviour could add to inflationary pressures via broadly based second - round effects. the governing council is monitoring price - setting behaviour and wage negotiations in the euro area with particular attention. furthermore, there are potential upside risks from unanticipated rises in indirect taxes and administered prices. against this background, it is imperative to ensure that medium to longer - term inflation expectations remain firmly anchored at levels in line with price stability. the shift in relative prices and the related transfer of income from commodity - importing countries to commodityexporting countries require a change in the behaviour of companies and households. therefore, broadly based second - round effects stemming from the impact of higher energy and food prices on price and wage - setting behaviour must be avoided. all parties concerned, in both the private and the public sector, must meet their responsibilities in this regard. in this context, the governing council has repeatedly expressed its concern about the existence of schemes in which nominal wages are indexed to consumer prices. such schemes involve the risk of upward shocks in inflation leading to a wage - price spiral, which would be detrimental to employment and competitiveness in the countries concerned. the governing council therefore calls for such schemes to be avoided. the monetary analysis confirms the prevailing upside risks to price stability at medium to longer - term horizons. in line with our monetary policy strategy, we take the view that the sustained underlying strength of monetary and credit expansion in the euro area over the past few years has created upside risks to price stability. over recent quarters, these risks appear to have become manifest as inflation has trended upwards. not least in the face of the ongoing tensions in financial markets, the monetary analysis helps to support the necessary medium - term orientation of monetary policy by focusing attention on the upside risks to price stability prevailing at medium to longer horizons. while the growth of broad money and credit aggregates is now showing some signs of moderation, also reflecting the policy measures taken since 2005 to address upside risks to price stability, the strong underlying pace of monetary expansion points to continued risks to price stability over the medium term. the current yield curve has led to very rapid increases in time deposits and to a substantial decline in annual

european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, frankfurt am main, 7 august 2008. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to our press conference. we will now report on the outcome of today ’ s meeting of the governing council. on the basis of our regular economic and monetary analyses, we decided at today ’ s meeting to leave the key ecb interest rates unchanged. the information that has become available since our previous meeting has further underpinned the reasoning behind our decision to increase interest rates in july. it has confirmed that annual inflation rates are likely to remain well above levels consistent with price stability for a protracted period of time and that risks to price stability over the medium term remain on the upside. this assessment is underpinned by continued vigorous money growth, with so far no signs of significant constraints on bank loan supply. in such a context, it remains crucial to avoid broadly based second - round effects in wage and price - setting. the latest economic data point to a weakening of real gdp growth in mid - 2008, which in part was expected after the exceptionally strong growth in the first quarter. against this background and in full accordance with our mandate, we emphasise that maintaining price stability in the medium term is our primary objective and that it is our strong determination to keep medium and long - term inflation expectations firmly anchored in line with price stability. this will preserve purchasing power in the medium term and support sustainable growth and employment. on the basis of our assessment, the current monetary policy stance will contribute to achieving our objective. we will continue to monitor very closely all developments over the period ahead. allow me to explain our assessment in greater detail, starting with the economic analysis. the information on economic activity that has become available since the july press conference suggests that real gdp growth figures for mid - 2008 will be substantially weaker than for the first quarter of the year. as indicated on previous occasions, this represents partly a technical reaction to the strong growth seen in the first months of the year. in addition, it also partly reflects a weakening in gdp growth due to factors such as slower expansion at the global level and dampening effects from high and volatile oil and food prices. in order to assess the underlying momentum of euro area economic activity and to avoid being misguided by highly volatile