Risks also stem from potential additional financial market tensions that could affect the real economy more adversely. Let me now turn to recent euro area price and cost developments. Recent inflation figures have been worrying. Over the last year, annual HICP inflation has risen steadily and markedly – from 1.7% August 2007 to 4.0% in July 2008.
According to Eurostat’s flash estimate it stood at 3.8% this August. The annual rate of HICP inflation has remained considerably above the level consistent with price stability since last autumn. This high level of inflation is largely due to effects of past surges in several commodity prices – notably those of energy and food.