In fact, it appears that in the current environment, higher prices are being passed on more quickly – and are also being more readily accepted – than was the case until just recently. In conjunction with this, longerterm inflation expectations have also been moving upwards slightly over the past quarters. Furthermore, there are clear indications of wage growth gathering momentum. How is the SNB handling this situation? We already made our initial response to the impending inflationary pressure in the final months of 2021. Both inflation and our inflation forecast at that time were still at a very low level. At our monetary policy assessment in December, we announced that we would allow the Swiss franc to appreciate to a certain extent in nominal terms in order to reduce the inflationary pressure from abroad. The Swiss franc gained around 4% in nominal terms between autumn 2021 and spring 2022, making imports cheaper and so countering the general increase in prices. In June 2022, we then raised  Page 4/16  the SNB policy rate for the first time in 15 years, by half a percentage point to −0.25%. At the same time, we signalled that further interest rate moves may be necessary in the foreseeable future. With our policy rate rise, the Swiss franc appreciated further. The need for monetary policy tightening is shown by our conditional inflation forecast of June 2022 (cf. Chart 5).
The companies apparently trusted that the SNB would be able to prevent a sustained decline in the level of prices through its decisive use of unconventional measures. The SNB was able to preserve its monetary policy credibility, even in this difficult environment. The second point relates to the adjustment processes following the sudden upward surges in the value of the Swiss franc. The negative or very low inflation in Switzerland was in fact part of these adjustment processes, since it contributed to reducing the overvaluation of the Swiss franc over time. Thus, the real exchange rate appreciated considerably less than the nominal exchange rate (cf. Chart 3). This helped to cushion the impact of the nominal appreciation on  Page 3/16  the real economy. The economy’s ability to adapt to an environment with low – and in some instances negative – inflation has been better than many expected. The Swiss economy has fared relatively well over the past 15 years. The labour market has remained robust overall, and GDP growth has been good by international comparison (cf. Chart 4). Like most other countries, Switzerland was unable to avoid significant declines in GDP amid the global financial crisis and during the pandemic, but each time our economy quickly returned to a growth trajectory. The SNB was able to ensure price stability in the phase marked by deflationary risks, and thus contributed to a comparatively robust development of the economy.