In fact, the economic situation in spring 1999 had given rise to concern about downward risks and had led to a precautionary interest rate reduction by 50 basis points on 8 April 1999. However, the current economic environment is far more favourable. Moreover, several indicators, including monetary growth, suggest that there is ample liquidity in the euro area.
Inflation rates are expected to increase gradually in the months ahead, mainly as a result of the increase in energy prices earlier this year working its way through to consumer prices. The latest data on industrial producer prices confirm this pattern. Over the medium term, however, it is important to prevent the availability of ample liquidity from translating into upward pressure on prices.