One argument is that it is good to have some margin as there is a risk that CPI overestimates inflation. For instance, it is difficult to exactly measure price increases as a result of better quality, which is thus not inflation. Another argument is that it is often difficult in practice to implement nominal reductions in prices and  BIS Review 8/2006  3  particularly wages. Some measure of inflation may therefore simplify necessary adjustments in relative wages and prices. At the same time, there have seldom or never been attempts to stabilise inflation at a level much higher than 2 per cent. This may be because this does not sufficiently anchor inflation expectations. Experiences from Sweden and other countries indicate that low, stable inflation is an important condition for favourable economic growth and that the work on maintaining low, stable inflation is made easier if the central bank can act independently. This is why the Riksbank, like many other central banks, has been given greater independence and an inflation target. If the central bank is not allowed to independently formulate monetary policy there may be political pressure to conduct monetary policy that aims to achieve other objectives. How does the Riksbank influence inflation? The tool the Riksbank has at its disposal for steering inflation is the repo rate. This is the interest rate the banks pay to borrow money from us. The objective of changes in the repo rate is to influence demand in the economy and thereby price developments.
In October 2011, the number of persons registered as unemployed in the groups regarded as vulnerable amounted to 220,000 (of a total of 372,000 persons registered as unemployed), which is almost double the amount in 2008 (an increase of 100,000). A large number of the persons registered as unemployed also have long periods without work behind them. One in four people has been without work for more than three years of the past ten years. As the matching for vulnerable groups appears to function poorly and there has been a rapid inflow in recent years to the labour force of people from groups that have difficulty getting jobs quickly, this is having a more long-term impact on unemployment and is thus also impacting various measures of equilibrium unemployment. It means that a change in the composition of the labour supply could lead to substantial changes in equilibrium unemployment and resource utilisation. When we try to assess resource utilisation, we therefore need to take into account the heterogeneity of the labour supply and expected changes in the composition of the labour supply. Concluding thoughts What I have discussed today points, as I see it, to a general truth; namely that many apparently simple and straightforward concepts are suddenly revealed, in a confrontation with reality, to be much more complicated. We have an official measure of unemployment, but even here there is reason to reflect on what this measure says about the amount of spare  10  BIS central bankers’ speeches  capacity in the labour market.