Norway experienced a rapid automation of the payment market after banks altered their pricing and began to implement transaction fees that better reflected banks’ own costs. In Sweden, the introduction of transaction fees for cheques contributed to bank customers’ increased use of debit cards. As for cash, Swedish banks do not implement any fees for cash withdrawals while such fees do occur, for example, in other Nordic countries. Thus, differences in pricing can be expected to be an important factor in explaining the differences we observe in the use of cash. Given this, the Riksbank together with the four major banks initiated a study on the pricing of payment services in Sweden. Together these four banks account for more than 90 per cent of the Swedish retail payment market. Our aim was twofold: we wanted to estimate the costs that banks have in the  1  Sveriges Riksbank (2004), “Prices and costs in the Swedish payment system”, in Financial Stability Report 2004:2. 2  Cheques are no longer in use in Sweden. 1/3  production of these services, and we wanted to see whether the price mechanism is working well; whether prices provide users with information on what the different payment alternatives cost. Cost and price estimates The study was based on both fixed and variable cost and price data from 2002. Normally we would assume that users receive correct cost information when they face transaction fees that correspond to marginal costs in production.
Higher inflation expectations boost demand and increase the extent of the pass-through of higher costs to consumers. As a result, companies have the opportunity to almost completely pass costs to prices and thereby maintain or even increase their profits, which in turn discourages them to take efforts in order to reduce costs and improve labour productivity. Monetary policy should prevent the inflationary spiral from getting out of control. Therefore, it should respond to transitory factors to the extent they transform into steady factors through higher inflation expectations. This is especially relevant when households’ inflation expectations and companies’ price expectations are at their peaks recorded over several years, as they are now. Third, monetary conditions are adjusting to key rate increases faster. Over the period after our July meeting, the yield curve of federal government bonds with maturities of up to three years has risen. Furthermore, yields on long-term government bonds remain almost unchanged since last March, when we started to raise the key rate. I would like to remind you once again that the stability of long-term interest rates is crucial for the stability of bank rates on investment loans and mortgages. Interest rates in the deposit market were growing in July—August. The demand for bank deposits started to edge up. As of the end of July, the outflow of funds from retail time deposits ended for the first time since the beginning of last year. Moreover, it even reversed to a slight inflow in August, according to recent data.