. “ looking through ”, however, must not be confused with being complacent. as fed governor gramlich has stated in a recent speech on oil shocks and monetary policy, the worst possible outcome for monetary policy makers would be “ to let inflation come loose from its moorings ”. 4 central banks will remain vigilant in their examination of longer - term inflation expectations. the swiss national bank, for one, would promptly react if there were any indications in its quarterly inflation forecast that second round effects were likely to undermine its long - term track record of maintaining price stability in support of maximum sustainable economic growth. appendix figure 1 nominal and real oil prices on oil economic dependency in bbl / th gdp in ppp 1. 2 [ usd / bbl ] 1. 0 brent crudenominal brent crudereal 1971 0. 8 0. 6 0. 4 0. 2 0. 0 us germany france switzerland source : bp, oecd, gs edward m gramlich, “ oil shocks and monetary policy ”, remarks at the annual economic luncheon, frb kansas city, missouri, 16 september 2004. figure 2 oil price average level and volatility 2 8 u sd + / - 4. 5 18 u sd + / - 3. 5 mean [ median ] s. d. 1986 : 1 - 1999. 12 ( ex 1990 : 9 ) : 17. 9 [ 18. 0 ] 3. 60 2000 : 1 - 2004 : 07 27. 7 [ 27. 4 ] 4. 51 o il figure 3 correlation between oil price and gdp r e v e r s e d c a u s a lit y : o il is d e m a n d d r iv e n s in c e 1 9 9 5. 0 5. 0 4. 0 3. 0 2. 0 1. 0 0 -. 0 1 o il _ o e f g dpw o rld _ yy correlation : world - gdp ( yoy ) and oilprice 1980 - 1994. 4 - 0. 389 1995. 1 - 2004. 4 + 0. 330 figure 4 us oil inventories mn barrels 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 w eek w eekly min and max since 1994 crude oil inventory 2004 ( 4wk avg. ) average inventory crude oil price ( rhs ) figure 5 crude grade qualities source : jpmorgan commodities research, energy intelligence group figure 6 crude oil

time and temporary employment in germany are boosting labour input. in line with this positive albeit hesitant trend of bringing more workers back into the economy, productivity growth rates have begun to recede in europe. the primary challenge for the european economy is to compensate this natural initial decline in productivity as a result of higher labour input. product markets must be further liberalized in order to unleash the full productivity potential of the new information and communication technologies. this will in turn further enhance ict enabled capital deepening by european businesses. such a virtuous cycle may well be enhanced by an insufficiently understood productivity lag effect from ict investments which could further benefit european businesses in the years to come. mervyn king, “ foreword ”, in : james proudman und stephen redding ( ed. ), “ openness and growth ”, bank of england, 1998. this virtuous process can be initiated. indeed, many european countries are well on their way. germany, for example, has steadily increased its competitiveness and is the only g7 country with a growing global export share over the last 5 years. by the same token, we must recognize that the process creates uncertainty for many european citizens. such heightened levels of uncertainty may impede consumer confidence. increasing overall labour input decreases labour productivity at least in the short - run and leads to downward pressure on wages. it seems to me of vital political and economic importance to counteract this pressure along two lines. first, as i have already indicated, we have to ensure that by way of product market reforms these productivity gains find their way through to consumers in the form of lower prices thereby dampening the downward pressure on real wages. in switzerland, where we face similar issues in the framework of the bilateral treaties, we have introduced an instrument package called “ accompanying measures ” to ensure an orderly transition. the officially fixed transition periods offer a time window within which the corresponding reforms on product markets can offset an eventual decline in nominal wages. second, european policy makers should focus on educational efforts to efficiently integrate the workers that are being brought back into productive activities through labour market reforms. we must not forget that many of these men and women have been unproductive for many years due to exclusionary labour market practices. their skills are unlikely to be state of the art when they return to work. continuing education and on the job training will therefore be crucial elements in bringing up their skills to a level commensurate with the new technologies they are likely to encounter in