gains in business efficiency. consumption should also strengthen further over time, in line with developments in real disposable income, increasingly supported by employment growth and improving labour market conditions. the risks surrounding this favourable outlook for economic growth are broadly balanced over the shorter term. at longer horizons, the balance of risks remains on the downside, stemming mainly from external factors. such factors include fears of a rise in protectionist pressures, the possibility of further increases in oil prices and concerns about possible disorderly developments due to global imbalances. with regard to price developments, according to eurostat ’ s flash estimate, annual hicp inflation was 1. 8 % in april 2007, after 1. 9 % in march. looking at the coming months, barring further increases in oil prices, significant base effects deriving from last year ’ s energy price volatility will strongly influence the profile of annual inflation rates. on the basis of the current level of oil prices and oil price futures, annual inflation rates are likely to fall somewhat in the months to come, before rising again towards the end of the year to hover at levels around 2 %. over the policy - relevant medium - term horizon, the outlook for price developments remains subject to upside risks. these relate notably to the increasing capacity utilisation in the euro area economy, the possibility of further oil price rises and additional increases in administered prices and indirect taxes beyond those announced and decided thus far. more fundamentally, stronger than currently expected wage developments could pose significant upward risks to price stability, not least in view of the favourable momentum in labour markets observed over the past few quarters. the governing council is monitoring wage negotiations in the euro area countries with particular attention. it is crucial that the social partners meet their responsibilities so as to continue to avoid wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro area citizens. in this context, it is also important to point out that wage agreements should be sufficiently differentiated and take into account price competitiveness positions, the still high level of unemployment in many economies and productivity developments across sectors. the monetary analysis confirms the prevailing upside risks to price stability at medium to longer horizons. the underlying rate of monetary expansion remains strong, in a context of already ample liquidity. the ongoing strength of monetary expansion is reflected in the increasingly rapid growth of m3, which in march reached an annual rate of 10. 9 %, as well as in the ongoing high levels of credit growth. monetary and credit

stability are different, they are complementary and combine to deliver a comprehensive approach to stability issues. there are various joint initiatives between the central bank and financial regulator, where our technical expertise is pooled. examples of this co - operation include our regular macroeconomic stress - testing exercises and publication of the financial stability report ; a regular programme of joint meetings of central bank and financial regulator management with the senior executives of our major banks ; and, finally, the parties cooperate fully in their participation in international fora on financial stability issues. there is also a memorandum of understanding between the central bank and financial regulator on financial stability issues. under this agreement, the central bank contributes to stability through the formulation of monetary policy, oversight of the financial system infrastructure, surveillance of the financial system, and undertaking any official financial operations that might be required in exceptional circumstances. for its part, the financial regulator makes its contribution through its prudential and consumer roles. in addition, a separate joint management committee was established to deal solely with the stability issues. the financial stability committee is the main forum where senior management from both the central bank and financial regulator meet formally to consider financial stability issues. however, in practice, staff at all levels of the organisation come together regularly in an informal way to discuss these matters and to undertake joint work. publication of the financial stability report is one of the ways in which our organisation contributes to financial stability on an on - going basis. a key element of the report is that it represents the joint views of both the regulator and the bank. it is our hope that the wideranging analyses in these reports encourages dialogue among the wider public on financial stability issues and conveys the importance of a stable financial system. in addition, the central bank and the financial regulator jointly hold round - table meetings with senior executives of the main domestic credit institutions as early as possible after publication. the aim of these meetings is to focus attention on the key risks outlined in the report. a key area where co - operation between the central bank and financial regulator has proved most useful is in respect to financial crisis management. the organisation is constantly developing its procedures to deal with potentially disruptive events and this is very much a joint effort between both parties. the central bank and financial regulator have held joint crisis simulation exercises and, more recently, these have involved the participation of officials from the irish treasury. this is in addition to the normal domestic standing group arrangements. this co - operation between both the central bank, financial regulator and treasury department leaves