The fact that this would happen is something we have foreseen for a long time, although not that it would happen as soon and as quickly as it actually has. This has also led to the forecast for productivity for the whole of 2007 being lowered as early as June. But I did not see any reason to change the forecast for productivity for coming years; my assessment was still that productivity would recover. This was because I viewed the slowdown in productivity as temporary. But productivity is a factor that is difficult to assess – there is a risk that the slowdown will be prolonged and lead to stronger cost pressures. This was one of the risk factors we noted in the June Monetary Policy Report. The assessment in September was that food prices would contribute to higher inflationary pressures than we had previously anticipated. If we look at how inflation has developed in recent months, the forecasts from June have been relatively accurate. In August inflation was actually completely in line with the forecast, although it had been slightly higher earlier in the summer than we had forecast in June. The assessment we made in September was that economic activity in Sweden actually looked slightly stronger than we had anticipated in June and that cost pressures had risen. We therefore decided to raise the repo rate to 3.75 per cent. This could in itself also motivate a slightly higher interest rate path.
The interest rate decision in September Let me move on to the stance I took at the most recent monetary policy meeting around a month ago. I, like the rest of the Executive Board, then voted to raise the repo rate by 0.25 percentage points. At the same time, my assessment was that the forecast for the repo rate that we made in June still appeared reasonable. Today I shall return to why I made this assessment. Increased uncertainty abroad… On the whole, my view in September was that international growth was good and had not changed significantly since June. But this does not prevent the view of growth in some individual countries having changed in important respects. In September our assessment was that growth would be lower than we had expected in June, in the United States in particular, but also in Europe. At the same time, developments were slightly stronger in a couple of our neighbouring countries and in several emerging markets. However, the international risk outlook had changed gradually in connection with the rising unrest in the financial markets. The change in the risk outlook largely originated in the United States. There the problems in the housing market had worsened and according to several statistics house prices in the United States fell on average, measured as an annual change. The question we asked ourselves at the September meeting was to what extent the problems would spread and slow down activity in the rest of the US economy.