However, from a monetary policy perspective, a terms of trade shock of this magnitude poses some challenges. It is likely that higher dairy prices will affect inflation in a number of ways. Firstly, as alluded to previously, increases in world dairy prices will lead to higher domestic dairy product prices. This has already begun to occur.
The conclusion from these sources was that a fall in asset prices, such as we had in Sweden, may create problems for private sector balance sheets, affect the supply of credit and result in payment system disturbances. Step by step this may affect spending decisions by households and firms, thereby impinging on general economic activity.