This has partly been a matter of supply shocks that do not normally have lasting effects on the rate of inflation. There is therefore reason to believe that when the increased price levels drop out of the twelve-month change figures from next spring onwards, inflation will fall back from the relatively high rates at present. The picture of inflation does, however, include other features that probably have to do with the high resource utilisation during the latest upward phase. The fact that domestic inflation has moved up even though economic activity is slowing could point to some underestimation of resource utilisation or to a relationship between growth and inflation in a wide sense that for other reasons is less favourable than assumed earlier. Recovery with prospective inflation in line with the target In the Inflation Report that now lies on the table we have opted for a main scenario where growth in the rest of the world is lower than we foresaw in the previous Report in May. The situation is particularly complicated in that the usual difficulties in determining exactly when activity is likely to turn upwards are compounded by the occurrence of a structural adjustment of saving and investment, above all in the United States, at the same time as economic policy there is undergoing a marked expansionary realignment. A further major complication is the future security policy situation, which is naturally hard to assess with traditional economic tools.
BIS Review 86/2001  1  In connection with increasing signs in August of a more marked economic slowdown in the rest of the world as well as in Sweden, share prices started falling again. For the krona, which had appreciated in July, this was a negative factor in the same way as it had been during the spring. Early in the autumn the picture of an international economic slowdown became even more accentuated. A number of indicators pointed to a worsening of demand in the United States even before the terrorist attacks. The uncertainty stemming from the attacks was liable to subdue demand in the rest of the world even more. After the U.S. Federal Reserve and other central banks had cut their instrumental rates on 17 September, on the same day the Riksbank decided to lower the repo rate 0.5 percentage points. An increased risk was perceived of inflation two years ahead being below the target, mainly because business and household confidence in the future might weaken and lead to a slowdown that was deeper and more protracted. The terrorist attacks led to great uncertainty in the financial markets. From what I have now said it will be clear that in recent months monetary policy has taken its cue from declining economic activity. GDP growth has slackened from a level of 3 to 4 per cent in recent years to a rate of between 1 and 1.5 per cent. Meanwhile, since last year the krona has depreciated by around 15 per cent.