data limitations as estimates are based on inflation - linked bonds or swaps which have only recently become more widespread. but it is likely that the inflation risk premia declined significantly in the 1980s and 1990s alongside the decline in inflation expectations, with investors accepting lower compensation for bearing inflation risk. the decline in inflation risk premia from mid - 2014, by contrast, pointed to the increased prominence that market participants assigned to 6 / 7 bis central bankers'speeches lower than expected inflation outcomes around that time. 5 more than a century ago knut wicksell ( 1898 ) described the natural rate as : “ there is a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise or to lower them. this is necessarily the same as the rate of interest which would be determined by supply and demand if no use were made of money and all lending were effected in the form of capital goods ”. 6 the “ u6 measure ” captures unemployment, underemployment ( i. e. workers who would like to work more hours ) and marginal attachment, which refers to those members of the workforce who are not seeking employment very actively, because, for example, they are not available to start a new job at short notice or have been discouraged by a fruitless search for work. 7 / 7 bis central bankers'speeches

##modative monetary policy stance, ongoing improvements in financing conditions working their way through to the real economy, and the progress made in fiscal consolidation and structural reforms. in addition, real incomes are supported by moderate price developments, in particular lower energy prices. economic activity is also expected to benefit from a gradual strengthening of demand for euro area exports. at the same time, although labour markets have shown the first signs of improvement, unemployment in the euro area remains high and, overall, unutilised capacity is sizeable. moreover, the necessary balance sheet adjustments in the public and private sectors will continue to weigh on the pace of the economic recovery. the risks surrounding the economic outlook for the euro area continue to be on the downside. developments in global financial markets and in emerging market economies, as well as geopolitical risks, may have the potential to affect economic conditions negatively. other downside risks include weaker than expected domestic demand and insufficient implementation of structural reforms in euro area countries, as well as weaker export growth. according to eurostat ’ s flash estimate, euro area annual hicp inflation was 0. 5 % in march 2014, down from 0. 7 % in february. the decrease reflects falls in the annual rates of change bis central bankers ’ speeches of the food, goods and services components, partly offset by a more moderate decline in energy prices. on the basis of current exchange rates and prevailing futures prices for energy, annual hicp inflation is expected to pick up somewhat in april, partly related to the volatility of service prices in the months around easter. over the following months, annual hicp inflation is expected to remain low, before gradually increasing during 2015 to reach levels closer to 2 % towards the end of 2016. at the same time, medium to long - term inflation expectations remain firmly anchored in line with price stability. the governing council sees both upside and downside risks to the outlook for price developments as limited and broadly balanced over the medium term. in this context, the possible repercussions of both geopolitical risks and exchange rate developments will be monitored closely. turning to the monetary analysis, data for february 2014 point to subdued underlying growth in broad money ( m3 ). annual growth in m3 was broadly stable in february at 1. 3 %, compared with 1. 2 % in january. the growth of the narrow monetary aggregate m1 remained robust at 6. 2 % in february, after 6. 1 % in january. the main factor supporting annual m3 growth continued