The introduction of euro notes and coins will have additional positive effects on the economic development in Europe, as it will be easier to compare prices and confidence in the new currency will be strengthened. Moreover, the euro is to be regarded positively not only with regard to the Swiss economy but also Swiss monetary policy. The Swiss export sector will profit from lower transaction costs, and currency devaluations - as previously implemented by some European countries in order to improve their competitiveness - will be a thing of the past. Swiss monetary policy will benefit from the fact that a large economic bloc now exists in Europe which pursues similar goals in terms of monetary policy. All in all, exchange rate fluctuations between Switzerland and the EMU countries should thus remain below the levels seen before the launch of the euro. Furthermore, the markets will realise in due course that there is no reason why the Swiss franc, with regard to the role as a safe haven currency, should be assessed differently than the euro. This realisation should reduce the risk of sharp appreciations. As a result of the introduction of euro notes and coins, the euro will increasingly be used as a means of payment in the tourism sector and the hotel and restaurant industry as well as in foreign trade, to some degree simply as a substitute for the D-mark.
In the following, I would like to describe the development of inflation over the past few months and explain our latest inflation forecast in more detail. The dotted curve in the graph shows our inflation forecast of June 2001. At the time, we expected inflation to climb slightly to 1.6% by mid-2002 and, subsequently, to recede gradually towards 1.2% by the beginning of 2004. This forecast was based on the assumption of a robust development of the world economy and a stable three-month Libor rate of 3.25%. We assumed at the time that the economic slowdown experienced in the United States and Europe would be overcome as early as in the second half of 2001 and that the Swiss economy would be able to perform according to its potential. The price of oil was expected to stand at approximately USD 25 per barrel. Our forecast of June overestimated the inflationary development of the last few months. Year-on-year inflation, as measured by the national consumer price index, dropped to 1.0% in the third quarter 2001 from 1.5% in the second quarter. In October inflation amounted to 0.6%, and to 0.3% in November. This sharp decrease can be mainly attributed to the marked fall in oil prices and prices of other foreign goods. Moreover, upward price pressure on domestic goods also eased markedly in November after still having been substantial until October. The dashed curve in the graph shows our latest inflation forecast. The table contains the average annual inflation rate according to the new forecast.