Overall, labour costs increased moderately and contributed to containing domestic inflationary pressures in the euro area, although the situation varied greatly from country to country. Despite significant inflationary shocks in 2006, and the fact that headline inflation was above 2% throughout most of the year, longer-term inflation expectations remained anchored to price stability.
Nevertheless, risks to price stability remained clearly on the upside throughout 2006, on the basis of the ECB’s economic and monetary analyses. In addition to the possibility of further oil price increases, several other risks were identified.