likely that this increase is related to expectations of a recovery of activity in the euro area, expectations of increasing inflationary pressure may also play a role. the more favourable expectations for economic development in the euro area are partly connected with a further improved outlook for the world economy, as is also reflected in the recent upward revision of the forecast for world growth by the imf. the growth of the us economy continues to be strong, and in japan economic indicators are now more clearly pointing towards an improvement in economic activity. in addition, in some asian countries the recovery in growth appears to be taking place somewhat earlier than expected. notwithstanding individual downside risks in the countries i have just mentioned and a more general uncertainty regarding the recovery in latin america, the world economy seems to be set for higher growth. as regards economic activity in the euro area, some important data have been released since we last met. a first estimate by eurostat for real gdp growth in the second quarter of 1999 points to slightly lower quarter - on - quarter growth compared with the first quarter of this year. however, these data do not appear to impinge on the view that there is an upturn in growth in the course of this year. in fact, industrial production data for the period up to july confirm the gradual improvement of recent months, and various survey data suggest that there was a further strengthening of output growth in the industrial sector over the summer months. evidence for the consumer sector continues to point to broadly robust consumption growth. the outlook for a continuing improvement in overall activity therefore remains favourable. in line with our expectations, the annual rate of change in the harmonised index of consumer prices ( hicp ) saw a further rise in august 1999 to 1. 2 %, up from 1. 1 % a month earlier. this upward movement was mainly caused by the ongoing increase in oil prices. some counterweight came from a decline in unprocessed food prices and from a lower rate of increase in services prices. largely reflecting this development in services prices, the hicp rate excluding more volatile components – namely energy and seasonal food – declined to 0. 9 % in august, having risen to 1. 0 % in july. oil prices continued to increase further in september and, given the relatively short time of pass - through to consumer prices, expectations of further increases in the overall hicp rate in the coming months have become firmer. in conclusion, monetary and credit developments indicate that continuous close attention must be given to upward risks to price

and denominator in the asset price calculation. 4 how might we know whether the distribution of interest rates has shifted? one can think of the interest rate distribution as being anchored by the neutral rate of interest. i talked about this in the australian context last year. 5 as i said then, empirically the neutral rate of interest is difficult to estimate. it is even harder to forecast. the factors which affect it are often slow moving. but sometimes they aren ’ t, most notably around the time of the onset of the financial crisis in 2007 – 08, when estimates of the neutral rate declined rapidly and significantly. currently, there is a debate in the us as to whether the neutral rate of interest has bottomed and is shifting up. this raises the question as to the degree and speed with which such a movement in the neutral rate in the us might translate globally. all of these questions highlight to me the inherent uncertainty about the future evolution of interest rates. one might decide that interest rates are going to continue to remain lower for longer, but i struggle to see how one can hold that view with any great certainty. yet there appears to me to be very little, if any, compensation for this uncertainty in fixed income markets. most estimates of the term premium in the 10 - year us treasuries are around zero, or are even negative ( graph 2 ). investors are not receiving any additional compensation for holding an asset with duration. 3 / 14 bis central bankers'speeches that is, one can have different views about the longevity of the current rate structure. 6 but, in part reflecting these different views about longevity as well as the unusual nature of the current environment, there is a significant degree of uncertainty about the future. yet many financial prices do not obviously offer any compensation for that uncertainty. low volatility it ’ s not only in the term structure of interest rates where compensation for uncertainty is low. measures of implied volatility indicate that compensation for uncertainty about the path of many other financial prices is also low, and has been low for some time. this has been true across short and long time horizons, across countries, including australia, across asset classes, and across individual sectors within markets ( graph 3 and 4 ). i will discuss some of the possible explanations for this, drawing on material published in the rba ’ s february statement on monetary policy, and also discuss the recent short - lived spike in volatility in equity markets. 4 / 14 bis central bankers '