A positive factor is that the rate of increase in lending to households has slowed down recently following the very high rates of increase we saw in the years before the financial crisis. Housing prices have also levelled out recently. Both monetary policy and the mortgage cap have probably played a role in subduing lending to households. 2 However, the debt ratio, that is debt as a percentage of disposable income, is still very high and higher than in many of the countries that have had problems in recent years as a result of substantial falls in housing prices (see Figure 12). A high level of household indebtedness can have serious consequences. When the households have large debts they become vulnerable. For example, a substantial fall in housing prices could give rise to extensive debt consolidation on the part of the households, which would risk leading to weak consumption  1  Since the monetary policy decision in October, we have also received the National Accounts for the third quarter. These figures show that growth declined somewhat, approximately in line with our assessment in October. 2  The mortgage cap was introduced as a general recommendation from Finansinspektionen in the autumn of 2010. In simple terms, it imposes a maximum loan-to-value ratio of 85 per cent when purchasing housing. BIS central bankers’ speeches  3  demand and high unemployment. Ultimately of course this would also lead to the risk of higher loan losses at the banks and risks to financial stability.
This persistence has partly reflected a series of transitory developments, such as the indirect effect of previous oil and food price increases and a limited changeover effect. However, structural factors in the labour and product markets have also played a role, as mirrored, in particular, in the upward trend in wage developments observed until recently. This trend has only just shown signs of stabilisation. Services price inflation has also remained stubbornly high. Indeed, structural rigidities have impeded an appropriate adjustment of wages and prices. As a result, annual inflation rates have remained above 2% during most of 2002, including November, as has been confirmed by Eurostat's flash estimate, which indicates an annual HICP inflation rate of 2.2%. Second, when looking forward from now until the early part of 2003, although recent developments in oil prices have lowered short-term price pressures, there are still some factors that could keep annual inflation rates above 2% for several months to come. Yet this short-term outlook is related both to base effects and to indirect taxes and administered prices, i.e. to temporary developments. Third, when looking beyond the short term, we consider that both the overall economic environment and the euro exchange rate, which has strengthened since early this year, will contribute further towards reducing inflationary pressure. Moreover, we expect the indirect effects of previous increases in oil prices and other factors to further unwind. Although wage-related risks remain in place, they are judged less likely to materialise as long as the economic environment does not change substantially.