These are better indicators of the underlying inflationary pressures. Moreover, in the longer run CPI inflation and CPIF inflation coincide. But it has turned out that uncertainty sometimes arises as to which target variable the Riksbank uses, whether it is the CPI or the CPIF. Sometimes it has been said that target fulfilment would be better if CPIF inflation was closer to 2 per cent during the forecast period, even if this means that CPI inflation is further from 2 per cent. I don’t believe this is correct. 11  For a description of the model see L. Christiano, M. Trabandt and K. Walentin, “Introducing financial frictions and unemployment into a small open economy model”, Working Paper no. 214, Sveriges Riksbank, 2007. 12  See C. Goodhart and J.-C. Rochet, “Evaluation of the Riksbank’s monetary policy and work with financial stability 2005–2010”, Sveriges Riksdag, August 2011, p. 66. 4  BIS central bankers’ speeches  However, it is natural to highlight the CPIF as a measure of underlying inflation when the forecasts for the CPI and the CPIF differ, and this is because of the Riksbank’s own monetary policy.13 Be clear about resource utilisation The Riksbank also endeavours to stabilise production and employment around sustainable paths of development. However, neither the Riksbank nor the Government and Riksdag have specified what are considered to be sustainable paths for production and employment. We usually try to ensure that resource utilisation is normal towards the end of the forecast period.
16  See, for example, the main report and sub-reports from the Commission on the Measurement of Economic Performance and Social Progress headed by Professors Stiglitz, Sen and Fitoussi: “Report by the Commission on the Measurement of Economic Performance and Social Progress”, September 2009. BIS central bankers’ speeches  5  shortages and the RU indicator17 – and CPI inflation.18 The correlation is highest for a lag of 4–6 quarters. Also take into account credit expansion and asset prices We should take credit expansion and asset prices into account more when we formulate our monetary policy. And we should develop and formally integrate the forecasts for credit growth and asset prices into the base for the monetary policy decisions, as well as reporting the uncertainty of the forecasts. Far too many countries have allowed their expansion in credit to be too high for too many years and this has led to very large problems when the bubbles have burst. The low interest rates have been a contributory factor to this trend.