It may take longer for households to work out the  10  BIS Review 68/2002  impact of low inflation on real interest rates than to realise that the rate of increase of prices of everyday purchases has fallen. Learning takes time. Chart 7 One-year ahead inflation expectations and inflation outturns in the UK, 1988-2002  Note: Inflation is the four quarter change in the RPI. Expected inflation is based on the quarterly Barclays Basix survey of inflation one year ahead. It is the weighted average across all surveyed sub-groups, excluding the general public. Expected inflation is lagged on year in the chart, so that expectations and outturns for the same period can be compared. Source: ONS and Basix. One possible consequence of a slow adjustment to low inflation is that households may mistake too much of the reduction in nominal interest rates for a permanent fall in the real rate. As a result, asset prices are bid up to levels that prove unsustainable when learning finally occurs - and at the LSE you know that in time we do learn. How far this theoretical argument applies to the British housing market at present is difficult to say, but it demonstrates the risks from current house price to earnings ratios that are close to the peaks reached in the late 1980s. *** So much for the costs of unanticipated inflation. What are the costs of anticipated inflation? Time permits me to comment only briefly on the four costs of anticipated inflation noted by Lord Kingsdown.
In trade-weighted terms, the Swiss franc is currently almost unchanged from January. Structural changes in the foreign exchange and money markets As you will know, the Swiss National Bank (SNB) implements its monetary policy via the money and foreign exchange markets. Consequently, structural changes in these markets are particularly important to us. I would now like to talk briefly about the major changes and their significance for our work. On the foreign exchange market, we are seeing a substantial decline in turnover in the primary interbank market. Meanwhile, the size of the market as a whole has decreased only slightly. This means that the interbank market has lost market share. The primary interbank market covers trading via the electronic communication networks. Between 2010 and 2013, turnover through these networks fell by almost 40% overall. In chart 3 you can see an example of this decline in turnover for the EURCHF and USDCHF currency pairs. In 2013, this was already below the previous levels, and a further decline in turnover is becoming evident for the current year. This development is attributable, in essence, to three factors. First, there is an increasing tendency for large merchant banks to use internal clearing for customer transactions. This means that the need for hedging transactions on the interbank market has declined. Second, to an increasing extent, merchant banks are offering liquidity via other electronic distribution channels such as their own trading platforms or multibank platforms. This enables them to attract more business and to benefit from the additional internalisation.