while the timing and strength of this upturn remain uncertain. continued close monitoring of further incoming information is thus warranted. in the current economic environment we do not expect medium - term upward pressures on inflation. however, as has been stated several times in the past, annual inflation rates for the months to come may be somewhat erratic on account of base effects as a consequence of the unwinding of past increases in energy prices and, albeit to a lesser extent, in food prices. in this connection, the possibility of some short - lived upward movements in the annual rate of inflation cannot be ruled out, but this should not be a cause for concern. likewise, downward shifts resulting from such base effects later in the spring should not signal a change in the longer - term outlook for price stability. as regards the cash changeover, we do not expect any noticeable effect on the price level, largely due to strong competition in the retail sector, continued awareness on the part of consumers and the commitment of governments not to increase the average level of administered prices ; however, we will of course remain vigilant. beyond short - term developments, we expect that wage moderation in the euro area will continue and that demand pressure on prices will remain subdued, although there are some grounds for concern about forthcoming wage negotiations. it is therefore particularly important to point to the indispensable role of continued wage moderation in fostering employment and maintaining a favourable outlook for price stability. on the basis of current information, annual inflation rates should fall safely below 2 % this year and thereafter remain at levels consistent with price stability over the foreseeable future. any factor which might alter this assessment in either direction will be carefully examined. let me also stress today how important it is for fiscal policies to maintain a medium - term orientation within the framework of the stability and growth pact. the current weakness in economic growth undoubtedly presents a particular challenge for those countries which have not yet attained budgetary positions close to balance or in surplus or which have high public debt - to - gdp ratios. however, rather than being detrimental to a return to sustainable economic growth, their adherence to their mediumterm objectives will strengthen consumer and investor confidence. countries without fiscal imbalances can, of course, allow automatic stabilisers to operate fully. that said, however, there is no case for fiscal activism. finally, i should like to reiterate our views on structural reform - particularly following the successful introduction of the euro banknotes and coins.

stable prices. by stable prices we mean inflation that is somewhere between 2. 0 ( percent ) and 4. 0 percent. smooth fluctuation now, how about the peso? these are the changes in the exchange rate since the beginning of the year. and you can see that the peso is in good company. you can see that the peso relative to our peers has been somewhat stronger. it depreciated, as it 1 / 2 bis - central bankers'speeches weakened against the dollar, but so have most of the currencies. and you can see that the peso is even stronger than the swiss franc since the beginning of the year. the swiss franc used to be a safe haven currency. while it is weaker than the malaysian ringgit, and the vietnamese dong, it is much stronger than the indonesian rupiah, the new taiwan dollar, the thai baht, the south korean won, and the japanese yen. and why is this? the strength of the dollar has been because the dollar has become the single most important safe - haven currency. when there are tensions, uncertainties around the world, it makes the dollar stronger. in fact, even when the uncertainty is in the us ( united states ), it makes the dollar stronger. in recent months, it has been about the messaging from the fomc ( federal open market committee ) of the fed. the fed has been saying it is going to be high for longer, and that has weakened most of the other currencies against the us dollar. but so, what? what happens when the dollar gets stronger, or the peso gets weaker is that some inflation comes in because our imports are all mostly invoiced in us dollars. if you look at the chart on the left, you have two bars. the one on the left is about what the effect of peso depreciation is on inflation. it was strong during the period before the shift to inflation targeting in 2002. today, we are reaping the benefits of that shift because ( as the second bar shows ) the effect of the depreciation of the peso on inflation has become weaker. what does that mean in terms of inflation today? if you look at the chart on the right, the red line is what the inflation rate has been. and then the broken blue line, is what inflation would have been had the peso not weakened against the dollar. the difference is actually very modest