This made it less probable that the global economy would remain weak for a number of years. Recent developments in Brazil have contributed to some recurrence of unrest in international financial markets. Once again there has been an international flight to securer assets but it has been more limited than last autumn. There has, however, been a substantial depreciation of the Brazilian currency. It is still difficult to tell just how crisis in Brazil may affect the world economy. The future course in Brazil, with the attendant risks of knock-on effects in Latin American and other parts of the globe, will depend on what the national authorities do to construct a sound foundation for the economy. It has been shown, not least by our own economic experience in the early 1990s, that changing from a fixed to a floating exchange rate does not by itself provide a lasting solution to economic problems. What is needed is rather a comprehensive programme for enhancing confidence, with budget policy as not the least important component. A clear target and a consistent approach in monetary policy BIS Review 14/1999  –4–  can also contribute to economic policy’s credibility. But it does seem likely that developments to date in Brazil will tend to subdue growth in Latin America and even to some extent in the OECD area as a whole. Despite the unusually long duration of the US economy’s upward phase, the situation there is still buoyant. Growth in the closing months of 1998 was very strong.
In other words, Sweden is now in the sixth year of favourable economic growth. The 3% average is much the same as during the upswing in the 1980s but clearly above the annual average of 2% achieved in the 20 years from 1970 to 1990. It may be more than we can expect to sustain in the long run. An important reason why it has still been possible to keep inflation down in recent years has been the existence of unutilised capacity. This in turn has to do with the deep recession from which the recovery started and the comparatively rapid expansion of capacity since then. Medium-term inflation expectations have gradually stabilised around the 2% inflation target. At times, however, including the recent period, transitory price movements have brought the annual average change in the CPI just outside the lower limit of the target’s tolerance interval. There have even been periods when trend inflation has been lower than expected. For the decision-making of monetary policy, as the Riksbank has pointed out earlier, transitory effects on inflation are normally a secondary consideration. We are working to clarify how the target formulation is applied in order to dispel any uncertainty about how we should appraise direct effects on consumer prices that come from movements in, for example, house mortgage interest costs and indirect taxes. Altered conditions for international developments Last autumn, in the September Inflation Report, the Riksbank pointed to a growing risk of a weaker international trend on account of the crisis in Asia.