Research indicates that a fall on the stock market affects household confidence relatively quickly, that is already after two to four weeks.5 The indicator of Swedish consumer confidence in the economy published by the National Institute for Economic Research tends to fall when the Stockholm stock exchange falls (see Figure 6). There may therefore be good reasons for believing that the recent falls on the stock markets of the world are one of the reasons why the Swedish households have become more cautious and are expected to increasing their saving. Financial turbulence has also led the companies to lower their expectations regarding the period ahead and to begin to postpone investments. All in all this has a dampening effect on economic activity in Sweden. High sovereign debts abroad affect Sweden As we have noted, the level of debt is high in the euro area and the United States. Following many years of budget deficit, what were in many cases already weak public finances were further undermined in connection with the financial crisis of 2008–2009. In 2009, the average budget deficit in the euro area amounted to 6.4 per cent of GDP. This figure fell to 6 per cent  5  See for example Jansen and Nahuis, 2003; Kremer and Westerman, 2004; and Beckmann, Belke and Kuhl, 2011. BIS central bankers’ speeches  7  in 2010 and is expected to be 4.4 per cent in 2011.
In line with developments elsewhere in the world, the Swedish purchasing managers index for October also showed a positive development. The expected upturn in private consumption is confirmed by new information, in this case turnover in the retail trade sector. The picture of a gradual, cautious strengthening of the labour market is also supported by incoming data regarding, for instance, new job vacancies, redundancies and companies’ recruitment plans. Employment appears if anything slightly stronger than was expected," said Mr Heikensten. “Inflation in the Swedish economy has been low since the end of 2003. According to the most recent data, for October, annual inflation in terms of the CPI and UND1X stood at 0.5 per cent and 0.8 per cent, respectively. The low domestic inflation rate is largely due to a surprisingly rapid increase in productivity. At the same time, imported inflation has been kept down by strong global competitive pressure, spare resources in the global economy and a previously relatively strong krona. Our assessment in the Inflation Report was that inflation would increase in future, but at a fairly moderate rate. At the beginning of the forecast period the oil price in particular was expected to push up the rate of price increase. After that, rising capacity utilisation in Sweden and abroad, together with diminishing effects of a number of price-dampening factors, was expected to lead to inflation rising.