BIS central bankers’ speeches  7  Table 2: Size of central bank balance sheets UK  US  Japan  Euro area  Mar 2013 (% nominal GDP)  26  19  34  31  Increase since Dec 2007 (pp of nominal GDP)  20  12  13  18  Sources: Datastream, Bank of Japan. 8  BIS central bankers’ speeches
Two factors are behind this development: the sharp appreciation of the Swiss franc following the discontinuation of the minimum exchange  2  4  According to World Bank data, the Swiss economy ranked 20th out of 194 countries in 2014. Switzerland’s export intensity is significantly above the OECD average. BIS central bankers’ speeches  rate and the pronounced fall in oil prices last year. These factors are transitory, and as such do not pose a threat to price stability over time in Switzerland. Exchange rate appreciation and the energy price decline are the results of international spillovers that affect consumer prices primarily by lowering import price inflation. 3 Chart 8 shows that most of the downward pressure on Swiss inflation is attributable to these international spillovers. However, as can be seen in the chart, domestic price components have shifted down as well. This harks back to the flexibility of Swiss companies, which I referred to earlier. In particular, those Swiss companies that compete in markets for imported goods have lowered their prices in order to maintain competitiveness in the wake of the exchange rate appreciation. Such price cuts play an important role in restoring the Swiss economy’s price competitiveness over the medium term. They are thus part of the adjustment process in response to the sudden exchange rate appreciation. That such a process can be painful for some of the companies directly involved goes without saying. For this year, we expect consumer price inflation to average about –1.2%.