However, for a production increase brought about by adjustment in stocks to be durable, it must be supported by a lasting increase in demand. Household consumption continued to increase, but there was no upturn in investment. The imbalances in trade and industry in the USA were perhaps more tangible than many had anticipated. Bankruptcies and accounting scandals created further unease on the financial markets, which then fell at a rate reminiscent of the 1930s crisis. In Europe the signs of economic recovery mainly concerned more optimistic expectations; expectations which were not later realised. The largest euro economy, Germany, in particular proved to be in a poorer condition than anticipated. However, here it was not a question of imbalances like those in the USA, but structural problems, such as a high level of unemployment that had set in and weak public finances, which made it difficult to conduct an economic policy that would support the business climate. Furthermore, the expected supporting forces from the other side of the Atlantic for the export industry were weaker the expected. In Sweden, the slowdown during 2001 had a limited effect on unemployment. The Riksbank’s calculations at the beginning of 2002 indicated that resource utilisation was relatively strained. Economic policy had a stimulating effect on the economy, through lower taxes and higher transfers.
But please remember that this should not be interpreted to mean that I have a different opinion of the Riksbank’s objectives. I consider it a good thing to conduct an open discussion on the policy pursued. And I hope that you intend to take part in this discussion, as the whole point of an open central bank is to facilitate such discussion and allow it to improve monetary policy. Riksbank focuses on total inflation picture I shall begin by describing the way the Riksbank works. The Riksdag has assigned two main objectives to the Riksbank: to maintain price stability and to promote a safe and efficient payment system. Today I shall concentrate on the first of these two objectives. The Riksbank has defined the target for monetary policy as to limit inflation to 2 per cent, with a tolerated deviation interval of plus/minus one percentage point. This tolerated interval indicates that deviations are likely, but that they will be limited. The objective is worded in terms of the consumer price index (CPI), which is a broad index consisting of the prices in a basket of goods and services consumed by an average Swedish household. As interest costs and indirect taxes included in CPI inflation are not assessed to have a long-term effect on inflation, the Riksbank has chosen to normally focus on UND1X, which is an index that excludes these factors. From time to time there may also be reason to disregard other price changes that are assessed as temporary.