During more recent decades, global inflation has declined. This is of course due to many factors. One is increased competition resulting from the deregulation of the financial and product markets as well as from the fact that previously closed economies are now integrated into the world economy. In Europe, the preparations for and introduction of the EMU contributed to a greater degree of price stability. In addition, the shift in economic policy in general has made a contribution, not least the introduction of inflation targets. In Sweden we chose the alternative of a flexible exchange rate combined with an explicit inflation target in 1993. Since then the inflation rate has gradually shifted down and appears to have stabilised at a low level. Inflation has been around 2 per cent a year on average since 1993, which can be compared with an average inflation rate of almost 8 per cent a year during the 1970s and 1980s. Everyone now understands that we are serious in our fight against inflation, which is important for the policy to succeed. There has been less fluctuation in the real economy than during the decades prior to the crisis in the early 1990s, and developments in both real growth and real wages have been significantly better. In addition to the introduction of an inflation target, the consolidation of central government finances and efficient wage formation have been important conditions behind this positive development. Where has this development taken us? The Riksbank’s tasks are stated explicitly in the Sveriges Riksbank Act.
Our objective is to maintain price stability. In addition, we have the task of promoting a safe and efficient payment system. The Riksbank's tasks were established in the new law introduced in 1999. This also created greater independence for the Riksbank. Decisions on the repo rate are made by the Executive Board of the Riksbank and the members of the Board are explicitly forbidden to seek or accept instructions when carrying out monetary policy tasks. Given this, I shall now discuss the Riksbank’s tasks and how we work to achieve price stability and financial stability. Formulation of the inflation target We have more precisely defined the first of our statutory tasks in the inflation target, which states that the annual rate of change in CPI should be 2 per cent, with a permitted deviation of ± 1 percentage point. The Riksbank chose CPI as the measure of inflation, partly because it is a broad price index that represents typical consumer purchases and it is familiar to the general public. In addition, CPI is used as a basis for price clauses in many types of contract. An explicit numerical target makes it easier to understand what we do. Choosing an inflation rate of 2 per cent as a target was not self-evident. Real price stability could be perceived as the inflation rate being zero per cent, but neither we nor any other country has chosen such a target.