Jean-Pierre Roth: Rising oil prices - a challenge for monetary policy?
Speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank,
Déjeuners de la Finance, Geneva, 2 November 2005.
The complete speech can be found in French on the Swiss National Bank's website (www.snb.ch).
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Despite oil prices being at a historically high level, inflation has increased only slightly in recent
quarters and growth appears to be robust. Are we to assume, therefore, that oil no longer plays an
important role in today's economic environment? What challenges does the current situation pose for
monetary policy?
For the first time, the steady rise in energy prices is not the result of a political boycott by oil-producing
countries, but of an increase in energy demand, coming in particular from the newly industrialised
countries in Asia. In other words, the rise in crude oil prices this time can be attributed to the strong
growth in global economic activity.
This does not mean, however, that the role of monetary policy has changed. Although core inflation
currently appears to be under control in most countries, a persistent and continuous rise in energy
costs could have an effect on all prices and wages in the long run, thereby jeopardising monetary
stability. Notwithstanding the low level of inflation (excluding energy prices), it is vital that the monetary
authorities maintain a forward-looking stance so as not to put their credibility on the line and to ensure
long-term price stability.