% compared with the previous quarter. these developments broadly confirm the pattern observed earlier in industrial confidence, which was on a declining trend in the second half of 1998. the latest data on industrial confidence in the euro area, i. e. those released by the european commission today, indicate that industrial confidence has weakened further. some recent wage developments in the euro area might have contributed to that. the level of unemployment has remained more or less unchanged over the past four months. finally, consumer confidence in the euro area has remained unchanged from the high levels seen at the beginning of the year. with regard to capacity utilisation in the manufacturing sector, which fell further in the fourth quarter of 1998, and retail sales, which up to november 1998 pointed towards broadly sustained growth, no new data are yet available. overall, with regard to the cyclical situation, recent data confirm our earlier expectations that there are still downside risks for output growth. the governing council will continue its thorough analysis and very close monitoring of underlying trends and review its broad outlook for the euro area accordingly on an ongoing basis, taking into account in a forward - looking manner the impact of both domestic and external developments. with regard to the latest data on the harmonised index of consumer prices ( hicp ), the annual increase for january 1999 was 0. 8 %, which is unchanged compared with the previous two months ( taking account of the most recent revisions ). looking at a breakdown of the hicp, a slight decline in the rate of increase in service prices ( from 1. 9 % in december 1998 to 1. 8 % in january 1999 ) was offset by a slight increase in goods prices ( from 0. 1 % to 0. 2 % ). the fall in the rate of change in services prices was mainly due to lower price increases for transport and communications ; this may have been a reflection of increased competition in these sectors. on the other hand, downward pressure from energy prices on goods prices diminished somewhat. on balance, the current data continue to suggest that there are no significant upward or downward pressures on prices in the short term. the pattern of risks to price stability has also remained broadly unchanged on balance. on the upward side, wage developments are a matter of concern, as would be any loosening of fiscal policies and the implications of this for achieving the objectives laid down in the stability and growth pact. in addition, recent exchange rate trends need to be monitored closely also in terms of their impact on prices. concerning downward risks

governed by the european market infrastructure regulation ( emir ), entered into force at the beginning of the year, and from 1 march 2017, all in - scope counterparties are obliged to post variation margins with a phased - in implementation for initial margins from 1 september 2017 through to 1 september 2020. collateralising financial transactions that weren ’ t collateralised before will naturally create additional demand for safe and liquid government bonds. central counterparty ( ccp ) data, for example, suggest that a significant share of assets pledged as collateral for meeting initial margins consists of government bonds. however, as yields on bonds have fallen relative to the remuneration on cash, more cash is used for initial margins than used to be the case. this elasticity of bond collateral is important to bear in mind when trying to assess the impact of central clearing or bilateral margining of derivatives transactions on collateral demand. taken together, regulatory factors can to some extent explain why some investors seem relatively price - insensitive with regard to their demand for safe short - term government bonds. this can best be seen by those who do have an economic alternative : euro area banks with access to the deposit facility. recall that german three - month and six - month bills currently trade around – 1 %, well below the rate on the deposit facility. the fact that banks still hold sovereign bills strongly points to a non - pecuniary motive. flight to safety let me now turn to the second factor : flight to safety. i showed you earlier that it is typical for spreads between swaps and quasi - credit risk free sovereign bonds to widen on account of risk aversion. as for the summer 2011 case, one would normally expect such flight to quality to be temporary, with the spread eventually returning to its pre - crisis level after some time. so flight to quality would tend to amplify, at times, the more secular trends arising from regulation. this, however, is not what we have observed recently at the short end of the curve. for example, after the uk referendum on eu membership in june 2016, the two - year german sovereign bondois widened as investors sought safety in short - term german sovereign bonds or equivalent safe assets. by the way, swap rates also fell in this instance as markets expected the ecb to ease its monetary policy stance further. but while ois rates cheapened again as investors understood that policy rates would remain unchanged, german sovereign bond yields never really recovered from the brexit - induced fall. you