The high inflation rate was partly explained by rising energy prices, but prices of certain other goods had also been raised more quickly than before. Our assessment was that inflation would not change very much over the coming year and would then gradually increase as economic activity improved and there was a rise in the rate of wage increase. Our forecast was that inflation would be on target a couple of years ahead, on the assumption that monetary policy gradually became less expansionary in line with market expectations in June. International statistics received over the summer indicate that economic prospects look more favourable now than we had assumed in June. The signals regarding the US economy are mixed, however, and some indicate that growth will be weaker than expected next year. However, the picture for the euro area and other parts of the world is that developments have been slightly stronger than assumed in our earlier forecasts. With regard to the Swedish economy, the national accounts for the second quarter have confirmed our assessment in June that growth would remain strong. The statistics show that GDP growth during the second quarter was actually higher than our forecast. However, the development in the number of hours worked and the number of persons employed was weaker than expected, which reflected the fact that productivity growth had been much higher than anticipated. The new indicators received point to continued stable economic activity and to an improvement in the labour market in future.
How do developments in house prices and household indebtedness come into the picture? House prices must be given consideration in the forecasts as they affect, through the wealth effects, households’ decisions regarding consumption and saving. The size of household debts is important to the way in which interest rate changes affect consumption. However, one problem is that it can be difficult in the normal forecasting and analysis work to capture the risks that ensue from large fluctuations in house prices and other asset prices. One reason for this is that the models usually used to make forecasts do not have such sophisticated descriptions of the financial sector and its interplay with the real economy. The problems are particularly great when house prices and credit growth have over a long period developed in a manner that is not sustainable in the long term. It is simply not possible, with the analysis and forecasting tools currently available, to forecast with sufficient accuracy whether, for instance, there will be a sudden correction in house prices, or whether there will be a calmer, more protracted adjustment. At the same time, the Riksbank must take into account the risks when conducting its monetary policy. If the rate of increase in house prices and household debts remains at a high level over a long period of time, the risk increases that imbalances will build up and will force an adjustment later on, which could in the worst case have significant consequences for the real economy and inflation.