the assumption of higher oil prices. in the view of the governing council, risks to this outlook for price developments remain on the upside. they include further increases in oil prices, a stronger pass - through of past oil price rises into consumer prices than currently anticipated, additional increases in administered prices and indirect taxes, and – more fundamentally – stronger than expected wage developments. against this background, it is crucial that the social partners continue to meet their responsibilities, also in the context of a more favourable environment for economic activity and employment. regarding prospects for inflation over medium to longer horizons, our assessment that upside risks to price stability prevail continues to be confirmed by the monetary analysis. the rates of monetary and credit expansion remain rapid, reflecting the still low level of interest rates in the euro area. in particular, loans to the private sector continue to grow at double - digit rates on an annual basis, with this rapid growth remaining broadly based across the household and corporate sectors. the moderation of annual m3 growth observed in the past two months – to 8. 5 % in june and 7. 8 % in july – may possibly reflect the impact of previous increases in interest rates. however, it also needs to be viewed against the high growth rate witnessed in may, which represented one of the highest annual rates of m3 growth seen since the introduction of the euro. more generally, recent monetary developments should be assessed with the appropriate medium - term perspective, and thus against the background of the persistent upward trend in the underlying rate of monetary expansion observed since mid - 2004. on this basis, liquidity in the euro area remains ample by all reasonable measures. continued strong monetary and credit growth in the context of already ample liquidity points to upside risks to price stability over the medium to longer term. monetary developments therefore require careful monitoring, especially against the background of improved economic conditions and strong property market developments in many parts of the euro area. to sum up, annual inflation rates are projected to remain elevated in 2006 and 2007, with risks to this outlook continuing to be clearly on the upside. given the ongoing dynamism of monetary and credit growth in an environment of already ample liquidity, a cross - check of the outcome of the economic analysis with that of the monetary analysis supports the assessment that upside risks to price stability prevail over the medium term. it is essential that inflation expectations remain firmly anchored at levels consistent with price stability. accordingly, strong vigilance is warranted in order to ensure that risks to price stability

european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank, frankfurt am main, 31 august 2006. * * * ladies and gentlemen, let me welcome you to our press conference and report on the outcome of today ’ s meeting of the ecb ’ s governing council. the meeting was also attended by commissioner almunia. on the basis of our regular economic and monetary analyses, at today ’ s meeting we decided to leave the key ecb interest rates unchanged. the information that has become available since our last meeting has further underpinned the reasoning behind our decision to increase interest rates earlier this month. it has also confirmed that strong vigilance remains of the essence so as to ensure that upside risks to price stability are contained. with key ecb interest rates at still low levels in both nominal and real terms, money and credit growth dynamic, and liquidity ample by all plausible measures, our monetary policy continues to be accommodative. if our assumptions and baseline scenario continue to be confirmed, a progressive withdrawal of monetary accommodation will remain warranted. indeed, acting in a timely manner to contain risks to price stability remains essential to ensure that inflation expectations in the euro area are kept solidly anchored at levels consistent with price stability. such anchoring of inflation expectations is a prerequisite for monetary policy to make an ongoing contribution towards supporting sustainable economic growth and job creation in the euro area. turning first to the economic analysis, all the main indicators in the euro area that have recently become available for the first half of the year show a significant improvement in underlying economic activity and indicate that economic growth was stronger than previously projected by official and private forecasters. according to eurostat ’ s flash estimate, on a quarter - on - quarter basis, real gdp grew by 0. 9 % in the euro area in the second quarter of 2006, significantly above the 0. 6 % growth rate recorded in the previous quarter. in interpreting recent gdp data, due account needs to be taken of the degree of volatility of quarterly growth rates, but they generally confirm our view that economic growth is broadening and becoming more sustained. the information on activity in the third quarter – coming from various confidence surveys and indicator - based estimates – continues to be favourable and supports the assessment of real gdp growing at rates around potential. looking forward, the conditions remain in place for the euro area economy to continue growing at around the potential rate. global