7 [14]  markedly and resulted in a price and wage build-up process, where wage costs rose by at most about 20 per cent a year. The Minister of Finance at the time, Per Edvin Sköld, took a number of measures: Excise duty on sales of cars was raised, building regulations were tightened, the forest industry had to deposit some of its large profits in special accounts and an investment tax was introduced.19 The interest rate was also raised by half a percentage point, which, according to a modern yardstick, may seem rather modest given the circumstances. Altogether, this meant that inflation was short-lived on this occasion too, and it is also known in the history books as the ‘one-off inflation’ (engångsinflationen). Expansionary policy during the most recent inflation period The longer period of high inflation from the early 1970s onwards is, of course, the first one I remember myself. The link to war is not as obvious as in the previous episodes, but it is definitely there (see Figure 2). The two oil crises in 1973-74 and 1979-80, often referred to as OPEC I and OPEC II, play quite an important role in this process OPEC I was preceded by the so-called Yom Kippur War of 1973 between Egypt and Syria on the one hand and Israel on the other. OPEC II is linked to the revolution in Iran in 1979, which led to a significant loss of oil production that was not matched by the other oil-producing countries.
I consider that an important conclusion can be drawn from this: Merely because inflation expectations are close to the target, the Riksbank cannot refrain from conducting an active monetary policy to make sure that it is attained in due course. The price increases we have seen in recent months are not something that monetary policy can affect. But the high inflation we have had in recent months risks setting off a spiral of price increases, wage drift, price increases, wage drift and so on. It is essential to ward off these tendencies in time. Therefore, it was time to adjust the direction for monetary policy. At the monetary policy meeting in April, the Executive Board decided on a less expansionary monetary policy, and the repo rate was raised by 0.25 percentage points. It was important to act in good time. As I see it now, the repo rate needs to be a couple of percentage points higher in a few years’ time. One of the purposes of a less expansionary monetary policy is to slow down economic activity and in this way reduce inflationary pressures in the economy. This can at the same time mean lower activity in the labour market. Here it is important to bear in mind that monetary policy can only affect the labour market in an imprecise way, while labour market policy has a significantly greater capacity to focus on the specific problems. References Boianovsky, Mauro (1998), “Wicksell on Deflation in the Early 1920s”, History of Political Economy 30(2), pp. 219–73.