of the intensified and prolonged financial market turmoil, the most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. the fall in oil prices from their peak in july and ongoing growth in emerging market economies might support a gradual recovery in the course of 2009. in the view of the governing council, the economic outlook is subject to increased downside risks, mainly stemming from a scenario of ongoing financial market tensions affecting the real economy more adversely than currently foreseen. other downside risks relate to the possibility of renewed increases in highly volatile energy and food prices, disorderly developments owing to global imbalances and rising protectionist pressures. with regard to price developments, annual hicp inflation has remained considerably above the level consistent with price stability since last autumn, standing at 3. 6 % in september according to eurostat ’ s flash estimate, after 3. 8 % in august. this still worrying level of inflation is largely the consequence of both the direct and indirect effects of past surges in energy and food prices at the global level. moreover, wage growth has been picking up rather strongly in recent quarters, in spite of a weaker growth momentum and at a time when labour productivity growth has decelerated. this resulted in a sharp increase in the year - onyear unit labour cost – to 3. 4 % – in the second quarter of this year, after several years of more moderate increases in the order of 1 - 1½ %. looking ahead, on the basis of current commodity futures prices, annual hicp inflation rates are likely to remain well above levels consistent with price stability for some time, moderating gradually during the course of 2009. at the policy - relevant medium - term horizon, taking into account the weakening in demand, upside risks to price stability have diminished somewhat, but they have not disappeared. they include the possibility of previous commodity price rises having further and stronger indirect effects on consumer prices, as well as a renewed increase in commodity prices. in particular, there is a very strong concern that the emergence of broad - based second - round effects in price and wage - setting behaviour could add significantly to inflationary pressures. moreover, unexpected rises in indirect taxes and administered prices could occur. against this background, it is imperative to ensure that medium to longer - term inflation expectations remain firmly anchored at levels in line with price stability. this is all the more the case in an environment of very high uncertainty. broad - based second - round effects

european central bank : press conference – introductory statement introductory statement by mr jean - claude trichet, president of the european central bank and mr lucas papademos, vice - president of the european central bank, frankfurt am main, 2 october 2008. * * * ladies and gentlemen, the vice - president and i are very pleased to welcome you to our press conference. we will now report on the outcome of today ’ s meeting of the governing council, which was also attended by commissioner almunia. on the basis of its regular economic and monetary analyses, at today ’ s meeting the governing council decided to leave the key ecb interest rates unchanged. we discussed extensively the recent intensification of the financial market turmoil and its possible impact on economic activity and inflation, recognising the extraordinarily high level of uncertainty stemming from latest developments. in this context, we stressed the crucial importance of keeping inflation expectations firmly anchored in line with our objective. price stability fosters an efficient allocation of resources, contains inflation risk premia and longer - term financing costs, and preserves the purchasing power of our currency. in so doing, it supports sustainable growth and employment and contributes to financial stability. the most recent data clearly confirm that economic activity in the euro area is weakening, with contracting domestic demand and tighter financing conditions. at the same time, annual inflation rates are likely to remain well above levels consistent with price stability for some time. with the weakening of demand, upside risks to price stability have diminished somewhat, but they have not disappeared. while the still strong underlying pace of monetary expansion points to upside risks to price stability over the medium term, the growth of broad money and credit aggregates is showing some further signs of moderation. it is imperative to avoid broadbased second - round effects in price and wage - setting. all parties concerned face exceptional challenges and are called upon to meet their responsibilities. accordingly, we confirm that we remain determined to secure price stability in the medium term and will continue to monitor very closely all developments over the period ahead. allow me to explain our assessment in greater detail, starting with the economic analysis. when analysing current developments in economic activity, it needs to be stressed that we face an extraordinarily high degree of uncertainty, in large part stemming from the recent intensification of the financial market turmoil. this complicates any assessment of the near to medium - term economic prospects. as the world economy as a whole is feeling the adverse effects