##shrined in the treaty as the ecb ’ s primary objective. with an average euro area inflation rate of close to 2 % since 1999, the ecb ’ s record so far has been in line with our quantitative definition of price stability. it is true that inflation has been somewhat higher than 2 % for some fairly long periods of time as a result of several adverse shocks – such as repeated rises in oil prices or indirect tax increases, to name but two. nevertheless, the ecb has succeeded in delivering a high degree of price stability over the medium term. in fact, by focusing on maintaining price stability over the medium term rather than seeking to counteract unfavourable price shocks with an overly aggressive monetary policy designed to restore price stability within a short period of time, the ecb has avoided excessive volatility in economic activity and employment. the ecb ’ s commitment to its primary objective of price stability and its ability to achieve this goal over the medium term are widely recognised by financial markets. a central bank ’ s credibility in pursuing policy objectives is vital to the preservation of monetary stability. the credibility of the ecb ’ s monetary policy has been established, and it is reflected in long - term inflation expectations, which have remained low and stable. and this, in turn, has been a major factor in attaining the historically low level of euro area bond yields that is giving considerable support to economic activity. what is the outlook for price stability and what are the challenges ahead? overall, there is no significant evidence of underlying domestic inflationary pressures building up in the euro area. hicp inflation, excluding its more volatile components of energy and unprocessed food, was 1. 6 % in march, unchanged from february. economic analysis suggests that domestically generated inflationary pressures are likely to remain limited. in an environment of moderate economic growth and continuing slack in labour markets, wages should continue to increase at a modest pace and the pricing power of firms should be constrained. nevertheless, there are several upside risks to price stability, despite the presence of downside risks to economic growth. at the present juncture, the persistently high oil prices and their potential second - round effects on wage and price - setting pose a threat to price stability. at the end of april, oil prices were around 30 % higher than at the beginning of 2005 and around 50 % higher than a year ago. they have exerted upward pressure on inflation and are the main reason why, over the coming months,

number of technical assumptions, including unchanged exchange rates and declining oil prices, and that the uncertainty surrounding the projections increases with the length of the projection horizon. regarding the governing council ’ s risk assessment, both upside and downside risks to the outlook for price developments are seen as limited and are considered to be broadly balanced over the medium term. turning to the monetary analysis, data for january 2014 confirm the assessment of subdued underlying growth in broad money ( m3 ) and credit. annual growth in m3 increased to 1. 2 % in january, from 1. 0 % in december. the monthly inflow to m3 in january was substantial, compensating for the strong outflow in december. the increase in m3 growth reflected a stronger annual growth rate of m1, which rose to 6. 2 % from 5. 7 % in december. as in previous months, the main factor supporting annual m3 growth was an increase in the mfi net external asset position, which continued to reflect the increased interest of international investors in euro area assets. the annual rate of change of loans to the private sector continued to contract. the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) was – 2. 9 % in january, unchanged from december. weak loan dynamics for non - financial corporations continue to reflect their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non - financial sector balance sheets. the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) stood at 0. 2 % in january 2014, broadly unchanged since the beginning of 2013. since the summer of 2012 substantial progress has been made in improving the funding situation of banks. in order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. this is the objective of the ongoing comprehensive assessment by the ecb, while a timely implementation of additional steps to establish a banking union will further help to restore confidence in the financial system. to sum up, the economic analysis confirms our expectation of a prolonged period of low inflation, to be followed by a gradual upward movement towards levels of inflation closer to 2 %. a cross - check with the signals from the monetary analysis confirms the picture of subdued underlying price pressures in the euro area over the medium term. as regards fiscal policies, the ecb