of growth. meanwhile, real gdp growth is projected to remain above potential in the coming years. nonetheless, inflation continues to be lacklustre. after lingering at levels well below 1 % for three years, with occasional dips into negative territory, euro area headline inflation increased towards the end of 2016 and has fluctuated, for the most part, between 1. 3 % and 1. 5 % since may last year. according to the flash estimate, annual euro area headline inflation stood at 1. 2 % in april, while hicp inflation excluding food and energy declined to 0. 7 %, slightly lower than expected. this negative surprise in core inflation is mainly attributable to a decrease in services inflation, which is likely to be related to developments in volatile items, also reflecting the timing of easter this year. on the basis of current futures prices for oil, inflation is likely to hover around 1. 5 % in the coming months. looking beyond some short - term volatility, measures of underlying inflation have moved sideways in recent months and have yet to show convincing signs of a sustained upward trend. wages continue to edge higher, which is an encouraging sign as overall muted wage dynamics have been an important element keeping a lid on underlying price pressures. there is much discussion about the phillips curve having become flatter in recent years, suggesting that the relationship between economic slack and inflation has weakened. but it is difficult to determine empirically whether changes in the phillips curve stem from a mismeasurement of slack or from parallel shifts in the curve. in other words, a flattening of the phillips curve could be confused with a mismeasurement of slack or a parallel shift of the complete curve. indeed, there is considerable uncertainty regarding the degree of slack in the economy. one reason for this is that productive capacities may have been positively affected by labour market reforms. in this regard, non - accelerating inflation rate of unemployment ( nairu ) estimates have been continuously revised downwards. when looking at slack over the past few years, it is also worth considering alternative measures of unemployment. the u6 measure, for example, captures unemployment, underemployment ( meaning workers who would like to work more hours ) and marginal attachment, namely those workers who are not competing very actively in the labour market, for example because they are not available to start a new job at short notice. 2 see the box entitled “ assessing labour market slack ”, economic bulletin, issue 3, ec

. these developments may have been particularly relevant for the retail and construction sector. in addition, concerns about trade protectionism may also have dampened business sentiment and expectations. nevertheless, the recent slowdown could also be a sign that supply - side constraints are becoming increasingly binding, albeit only in some sectors and in some countries. for instance, in the capital goods sector, capacity utilisation and backlogs / supply delivery times stand at alltime highs. whereas in the construction sector, an increasing number of firms are indicating that a shortage of labour is limiting their production. there is so far no evidence that the moderation in the pace of economic expansion reflects a durable softening in demand. recent information remains consistent with a solid and broadbased expansion in domestic demand. sentiment indicators remain in expansionary territory and 1 / 4 bis central bankers'speeches are still well above long - term averages for most sectors and countries. moreover, the underlying momentum is still supported by favourable financing conditions, a robust labour market and steady income and profit growth. the ongoing expansion has led to strong employment gains. the number of people employed in the euro area has increased by more than 7. 8 million since the trough in mid - 2013. this implies that all of the job losses recorded during the crisis have been recovered. the unemployment rate is at its lowest level since december 2008, despite an increase in the labour force of more than 2 %. consumer spending is being driven by steady growth in households ’ real disposable income, favourable bank lending conditions and the notable progress achieved in deleveraging. since 2016 employment growth, together with the gradual increase in compensation per employee, has become the main driver of households ’ real disposable income. the contribution of taxes and transfers, by contrast, has become more negative, as automatic fiscal stabilisers act to somewhat dampen the growth of real disposable income in times of economic expansion. these developments contrast with the early years of the recovery ( 2014 – 15 ), when real disposable income was still strongly supported by improvements in the terms of trade as a result of the fall in oil prices. the investment outlook continues to strengthen and is supported by an ongoing need to modernise the capital stock after years of subdued investment, as well as by very favourable financing conditions, an improvement in profitability and solid demand. the european commission ’ s biannual investment survey, which was released on 27 april, shows expectations of a strong increase in