Commodities are priced in dollars, and this may mean that commodities exporters will try to gain compensation through higher prices if the dollar falls. In recent years, portfolio investment in commodities has become an increasingly common means of diversifying and spreading risks. The fact that interest has increased is due to the return on other investments deteriorating and this has probably contributed to reinforcing the upswing in commodity prices. If the expectations of the relative return on this type of investment were to decline, it could instead have a subduing effect on prices. How does one weigh together all of the factors I have mentioned? There is of course considerable uncertainty. The assessment we made at our last monetary policy meeting was that the world market prices would not continue to rise at the same rapid rate. This meant that the high inflationary impulses from the price rise on food commodities were assessed as  4  See Irma Rosenberg, “Rising commodity prices”, speech held on 9 May 2008. 5  IMF (2008) World Economic Outlook. 6  See the UN’s climate panel 2007: Impacts, Adaptation and Vulnerability. 4  BIS Review 68/2008  partly temporary. This is something that is so far supported by the tendencies towards a slowdown in food commodities prices in the world market which we have been able to see recently. Information received since the last meeting I now intend to move on to say a few words about the information received since the most recent interest rate decision.
We assumed therefore that growth in the world economy would be somewhat weaker in 2008 and 2009. In Sweden on the other hand, economic activity was somewhat stronger than expected. Nevertheless, it was assumed that the weaker prospects for economic activity internationally would lead to a slowing down of growth in Sweden as well later this year and early next year. Signs of this slowdown were already beginning to appear, for example in the data in the National Institute of Economic Research’s Economic Tendency Survey and in the statistics on retail sales and new job vacancies. Our assessment, however, was that the slowdown in Sweden would be relatively moderate. GDP growth remained good, and the potential for future growth was still relatively favourable. The level of saving among households and in the public sector was high. Property prices were fairly stable and the direct effects of the financial turmoil were expected to be relatively slight. BIS Review 68/2008  1  At the same time, inflation was high both in Sweden and abroad. This related above all to higher energy and food prices on the world market. Inflation expectations in Sweden also remained high, and were also way above the inflation target even in the longer term. We thus had to take various counteracting factors into account. On the one hand, growth in the Swedish economy was still good and both inflation and inflation expectations were high.