Unfortunately there is no measure of inflation that in every situation can show whether monetary policy is properly balanced or which measures are called for. I have already mentioned the CPI’s advantages. The main drawback is that from time to time this index is markedly affected by price movements that the Riksbank neither can nor wants to counter. Not wanting to counter them mainly has to do with the time lag before monetary measures bite; another reason is that we would be chasing our own tail if, for example, we were to raise the interest rate to counter an increase in interest expenditure that stems from our own earlier interest rate hikes. We have therefore clarified how policy is formed in relation to price movements that are transitory. In practice, monetary policy in recent years has been based on forecasts of inflation excluding indirect taxes, subsidies and interest expenditure, that is, on the index known as UND1X. •  The third issue is the exchange rate’s role in monetary policy. There is less talk about this today but in the early years with the inflation target the public debate was all the more lively. The discussion subsided when the Riksbank, early in 1996, made it clear that policy is guided by the long-term outlook for inflation and continued to lower the repo rate even though the krona had weakened. For monetary policy the central consideration is thus the exchange rate’s impact on inflation.
In this context, a high enough level of real convergence (in addition to the compliance with the nominal convergence criteria) is needed when joining the euro area, to limit the costs associated with losing monetary policy independence. A high enough level does not mean that we are so ambitious as to aim for a convergence level of 90% of the Eurozone average or a level equal to that of Germany (as is the case with certain approaches put forward in Hungary or Poland). However, we need to achieve a real convergence level of at least 70–75 percent of the Eurozone average. Otherwise we would be insufficiently developed and, therefore, vulnerable to asymmetric shocks and unable to synchronise our business cycle with that of other euro area economies. However, we must take care that the level of convergence increases in a sustainable manner. We should be able to preserve the pace of this process, and once steps forward have been made, we may not stop or go backwards. Past achievements in nominal and real convergence, while significant, do not guarantee future success. To this end, allow me to bring up an old, but reliable principle. The Latin saying festina lente is perfectly suitable in this case: hurrying in a slow manner, if I can say so, on the convergence path means achieving a sustainable pace in the medium and long term. In other words, we need to be a marathoner, and not a sprinter.