The apparent absence of any marked overvaluation in the country overall does not mean of course that house prices in some parts of the country or in some submarkets have not been driven up more than is justified in the long term. The fact that the price increases can be explained relatively well by rising incomes, lower nominal interest rates and low construction activity does not rule out the possibility that the rate of increase could slow down, or that prices could even fall in the future. The developments in these explanatory factors normally follow the business cycle. However, the adjustment should be less drastic than in a situation when prices have soared in a way that cannot be attributed to developments in underlying factors. At present, it is especially important to remember that interest rates are low in historical terms and that they therefore very probably can be expected to rise in the period ahead. To get an idea of what constitutes a reasonable level for interest rates in the long term, one can look at countries that have had a floating exchange rate and low inflation for a longer time than Sweden. In the US and Germany, for instance, key interest rates have normally fluctuated between two and six per cent. When you have a regime with a successful inflation targeting policy I think that you normally can expect interest rates in this range. That also makes it clear that today’s repo rate of 1.5 per cent is uniquely low.
The confidence indicator has risen for both the manufacturing and construction industries as well as for trade and services industries. New orders in manufacturing have picked up, mainly in the export market but there has also been a clear improvement in the domestic market. Monthly data for foreign trade in goods also indicate an increasingly bright picture for exports. Like the developments elsewhere in the world, the Swedish purchasing managers index for October also showed a positive development. New data for retail sales point to continued relatively strong rises. At the same time, the NIER’s consumer survey for October provides somewhat mixed signals. Households have become slightly less optimistic about the Swedish economy and unemployment, while their expectations regarding their own finances have improved. As regards the labour market, we noted in the October Inflation Report that there were signs of an improvement in the situation. The strengthening of domestic demand and the announced measures in the Budget Bill were judged to lay the foundation for a rise in employment in the period ahead. However, the change in methods in the labour force surveys means that developments in the labour market are particularly hard to interpret at present. Employment growth appears perhaps to have been somewhat stronger than we expected in October. Developments in the number of new job vacancies and redundancy notices also point to an upturn in the labour market. In addition, the NIER’s latest quarterly business tendency survey contained a number of positive signals regarding companies’ hiring plans.