All in all, this gave us reason to expect a continued low but gradually rising inflation rate for a large part of the forecast period, and an inflation rate in line with the target towards the end of the period. The information received about the Swedish economy since the publication of the Inflation Report points to a stable upswing in economic activity with an increased contribution from domestic demand. However, the foreign trade statistics and the National Institute of Economic Research’s most recent business tendency survey suggest that manufacturing activity may have begun to slow and that the expansion in the export industry may have been dampened somewhat faster than expected. Meanwhile, the same survey points to increasingly strong domestic demand in sectors such as construction, trade and private services. Retail sales have grown in line with what we assumed in our forecasts and Swedish households have become more optimistic about the future. Recently, however, the oil price has returned to a very high level and some indicators in the euro area have been weak. Nevertheless, on the whole the developments appear to be broadly in line with the economic outlook we presented in the previous Inflation Report. BIS Review 25/2005  5  Concluding remarks Allow me to conclude by reiterating that we expect inflation to be lower than target for a large part of the forecast period.
Thus, having fallen for a period, product prices for industrial goods also began to rise towards the end of 2003 although the rate of increase stopped at 1 per cent in 2004. Since the latter half of the 1990s labour costs per hour in the Swedish manufacturing sector have risen at a somewhat diminishing rate. Coupled with high productivity growth, this has resulted in sharply falling unit labour costs (Chart 6). That contributed to a slight rise on average in profit margins in the manufacturing sector last year as well, despite the fact that the increase in intermediate goods prices did not completely pass through to product prices. BIS Review 25/2005  3  Stiffer competition, partly due to low prices of imported goods, increased import penetration, i.e. a higher share of imported goods in total consumption, and new foreign players in the Swedish market may have contributed to the high productivity growth and the low producer price inflation for domestically produced goods. Producer prices for imported goods Import prices for consumer goods have fallen since the end of 2002 (Chart 4). Import prices in Swedish kronor are determined by the price developments and price level in the countries from which we import, how large a share we import from each country and developments in the exchange rate. The krona has strengthened more or less continuously from its weak level at the end of 2001, and this of course has contributed to the fall in import prices in recent years (Chart 7).