Monetary Policy and Oil Prices: A New Paradigm?

November 18, 2004
Swiss-American Chamber of Commerce, New York

Download file now

The file can be downloaded with the button below.

Summary

Oil price developments in 2004 bring back painful memories of the oil shocks during the 1970s. However, respective oil price increases are not comparable in real terms and inflation expectations are currently well anchored. Nonetheless, several factors support the hypothesis of an upward shift in oil price levels as observed in long-dated oil futures contracts: the integration of large oil importing countries into the world economy, low oil inventories, inadequate investments in the oil supply chain, and the role of oil as a financial asset class. Compared to past decades, the pass-through of changing oil prices into headline inflation appears to occur at a more rapid pace. At the same time, the magnitude of the pass-through seems to be less pronounced because of globalization pressures, decreased oil dependency and central banks firmly committed to price stability. For monetary policy, core inflation measures are important because they indicate potential second-round effects due to changed wage- and price-setting behavior. Currently, inflation appears to be contained in Switzerland and elsewhere. As long as longer-term inflation expectations are firmly anchored, monetary policy can afford to “look through” the temporary rise in headline inflation. Going forward, the key challenge for monetary policy authorities will be to continue to firmly anchor these longer-term inflation expectations. The Swiss National Bank would promptly react if there were any indications that second-round effects were likely to undermine its long-term track record of maintaining price stability.

Additional files

Related content

Author(s)

  • Philipp Hildebrand
    Member of the Governing Board

Your settings

Required: These cookies (e.g. for storing your IP address) cannot be rejected as they are necessary to ensure the operation of the website. These data are not evaluated further.
Analytics: If you consent to this category, data such as IP address, location, device information, browser version and site visitor behaviour will be collected. These data are evaluated for the SNB's internal purposes and are kept for two years.
Third-party: If you consent to this category, third-party services (used, for example, to add social multimedia content to the SNB's website) will be activated which collect personal data, process these data, disclose them abroad - worldwide - and place cookies. The relevant data protection regulations are linked in the 'Privacy statement for the website of the Swiss National Bank'.

Choose your preferred settings:

This website uses cookies, analytics tools and other technologies to provide requested features, content and services, to personalise the content shown, to provide links to social media, and to analyse the use of the website in anonymised form for the purposes of improving usability. Personal data are also disclosed abroad - worldwide - to video service providers and the analytics tools of these providers are used. More information is available under 'Manage settings'.