Anna Breman: Monetary policy contributes to stability in a turbulent world

Ms Breman began by saying that the dramatic developments abroad could lead to higher inflation and lower growth in the Swedish economy. Increased trade barriers can contribute to higher inflation, at least in the short term. However, at the same time, inflationary pressures could be dampened by weaker demand, lower energy prices and a stronger krona. Swedish growth is also being supported by the Riksbank's interest rate cuts, rising real wages and extensive defence spending in Sweden and Europe.

“Inflation has been higher than expected in recent months. The upturn is explained by factors that monetary policy would normally disregard; new weights in the CPI basket, rents and administrative prices that reflect earlier price increases. Inflation is expected to fall back next year. But we need to be extremely vigilant and to act if forward-looking indicators point to inflation being lastingly above the target.”

Ms Breman also highlighted the fact that food prices have risen more than expected in recent months and that food prices are the price category for which the price level has risen the most in recent years.

“Food is a necessity, which means that households cannot reduce their consumption to any great extent when prices rise. It is particularly tough for households that already have small margins. Research also shows that food prices have considerable importance for all households’ inflation expectations.”

Rapidly rising food prices can displace other consumption, increase households' precautionary saving, and they risk delaying the recovery of the Swedish economy, said Ms Breman. But she added that lower global prices on items such as coffee and cocoa that have seen high price increases, and a stronger krona suggest that food prices should not continue to rise as fast in the future.

Ms Breman also commented on the Riksbank's forecast for the policy rate, which indicates an unchanged rate over the next three years.

“With the sharp shifts abroad that we are currently experiencing, there is considerable uncertainty even in the short term. I therefore consider that the policy rate path should rather be seen as a reflection of the risk outlook than a forecast that the policy rate will remain unchanged for three years. If the outlook for inflation and the economy changes, we will act by raising or lowering the policy rate.”