##ibly, the situation in some european countries such as the united kingdom, spain, but also the netherlands, remains difficult. it would especially cause problems for some banks if failures were to occur simultaneously in more than one of these cyclically dependent sectors. it is encouraging, however, that banks have continued to strengthen their ability to absorb losses. we note a steady improvement in german institutions ’ capital ratios over the past few years. as at june 2013, the 12 largest german banks showed an average tier 1 capital ratio of 15. 3 %. that represents a year - on - year increase of more than 2 percentage points. the leverage ratio, too, has fallen on average from 33 to 28. that is a gratifying development on the whole. it shows that future regulatory requirements are being anticipated. for us, this creates a good starting point for the forthcoming balance sheet assessment, which i shall go into later. however, this should not detract from the fact that some banks still have to undertake considerable efforts to meet the requirements of basel iii. quite a few banks will therefore continue to shrink their balance sheets. this is because the increase in the capital ratios of the major german institutions over the past few years has been achieved less through the retention of profits than by reducing holdings of risky assets. thus, the capital increase between june 2012 and june 2013 was more than €3 billion in net terms ; since december 2008 it has been almost €20 billion. by contrast, the large german banks have reduced their risk - weighted assets by more than € 150 billion since june 2012 ; over the past four and a half years, the figure is as high as nearly €600 billion. this means that these 12 banks have reduced their risk assets by more than one - third in this four - andhalf year period. i nevertheless basically take a positive view of this deleveraging, since it principally affected the cutback portfolios that were not part of the banks ’ core business. at the current end, the profitability of the large banks has stabilised. recently, this has been underpinned mainly by the trading result and low risk provisioning – two income components which tend to be rather volatile and cyclically dependent. the most important source of earnings, especially for the german universal banking system – net interest income – is bis central bankers ’ speeches declining, however. that is also due to the current low - interest - rate setting, which is exerting extra pressure on the interest margin.

, we have seen prices of digital consumer goods fall significantly. digitalisation may sometimes also contribute to price transparency, which, by diminishing firms'local market power, could affect inflation indirectly. the effect of demographic trends on inflation is less obvious. if the dominant effect were greater willingness to save for retirement, one channel would go through a decline in the natural rate of interest, implying that monetary policy could turn out tighter than intended – leading to lower inflation. 3 possible post - pandemic inflation factors the period of missing inflation came to an abrupt end in 2021, when the pandemic began to lose its grip. the surge in energy prices, supply chain distortions induced by containment measures as well as supply bottlenecks due to strong consumer goods demand all fuelled the return of inflation, in a way never seen since the start of the monetary union. the russian attack on ukraine amplified this return, especially owing to a further drastic rise in energy prices. central banks around the globe had to act decisively to curb high inflation. in the euro area, the ecb governing council increased interest rates ten times in a row, a pace of tightening unseen since the start of the euro. since late 2022, the wave of inflation has been receding. energy price dynamics even reached negative territory, supply - chain strain eased, and core inflation has started to decline. in the euro area, inflation is expected to return to values of around 2 %. this is evidence of the success of the eurosystem's tight monetary policy. but looking ahead, do we need to prepare for a return to the world of too low inflation we were used to in the last decade? i am not convinced – for at least three reasons. first, take geopolitical uncertainties. we have just learned the hard way that costefficient global production chains and trade patterns may come to a sudden halt. of course, it makes no sense to fully abandon the advantages of international division of labour altogether. however, to improve resilience, some form of de - risking seems reasonable, especially in the case of strategically important goods. 4 we should keep in mind that greater security for supply chains is likely to come with some additional price pressures. second, take demographics. previously, many focused on the effect of demographics on propensity to save. now, a shortage of labour is becoming more and more visible in developed countries. for example, in germany, there are currently 1. 2 va