Another supply factor that has contributed to low inflation is, as already mentioned, low increases in imported goods prices. Since early 2003, consumer prices for imported goods and services, excluding oil products, have fallen (diagram 8). The fact that the krona appreciated continuously from 2002 and up to the end of 2004 naturally played a role in the low import prices. However, the Riksbank’s forecasts for import prices included an assessment that the exchange rate would strengthen. Nevertheless, import prices excluding oil products have been surprisingly low. What can then explain the high productivity growth and the weak developments in import prices? This is, of course, difficult to know. One hypothesis often used to explain high productivity growth is that the extensive investment in information technology made earlier has begun to show results. Another explanation that I touched on earlier, and which has a bearing on both the rapid productivity growth and the depressed import prices, is the increase in competition. Stiffer competition from China and other low-cost countries has, for instance, contributed to increased pressure for rationalisation in many sectors. This, combined with outsourcing of work to low-wage countries, may have created opportunities to improve productivity at a faster rate than before. In addition, an increasing percentage of Swedish imports are coming from countries with low price levels. This shift in imports from countries with relatively high prices to countries where prices are much lower has probably contributed to keeping down prices of imports to Sweden more than the Riksbank had previously estimated.
This is despite the oil price having almost doubled over the past two years and substantial price rises on other commodities. Most indications are that international economic activity will continue to develop well over the coming years. We are assuming that economic activity in the euro area will improve more and more and that growth in the United States and Asia will slow down somewhat. The Swedish economy has also shown good growth in recent years. The upswing in world trade has contributed to strong growth in Swedish exports. Over the past year, domestic demand has also developed favourably, partly due to stimulation from expansionary monetary policy. The labour market situation has at long last begun to improve. Our assessment is that growth in the Swedish economy will remain high over the coming years. Household consumption is expected to accelerate and employment to increase. We also envisage inflation rising as capacity utilisation increases (diagram 2). Over the past six months we have witnessed the beginning of a rise in the rate of price increase, albeit from a low level. This does not appear to be due to large price rises within a few product groups; it appears to be a broader upturn. The Inflation Report we are publishing today indicates that inflation will be close to the target level a couple of years from now. This assumes gradual increases in the repo rate. I would like to emphasise that there are factors which complicate this picture. Inflation was unexpectedly low in January.