These include the low precipitation that affected hydroelectric power, various diseases that affected livestock and the fact that Sweden and southern Europe suffered poor harvests. We are in agreement with other forecasters and analysts that the inflation rate will fall as the effects of the transitory price rises abate and inflation approaches 2 per cent in early summer. In the longer term perspective, however, the picture looks slightly different and developments indicate an inflation rate above the target of 2 per cent. The assessment contained in the main scenario of the most recent Inflation Report has CPI inflation at 2.2 per cent one year ahead and 2.4 per cent two years ahead. The corresponding forecast for underlying inflation, UND1X, is an increase of 2.2 per cent at both one and two years ahead. It is the latter measure that is the most central to monetary policy. However, each inflation assessment also takes into account the risk spectrum. The risk spectrum mainly concerns domestic inflationary pressure. If resource utilisation comes under greater strain than the Riksbank has estimated in its main scenario, or if the potential growth rate has been overestimated, there is a risk that inflation will be higher than expected in future. Taking into account the risk spectrum, underlying inflation comes out at 2.3 per cent both one year and two years ahead. Although the inflation rate is expected to fall over the coming months, the forecasts indicate that it will exceed the inflation target one to two years ahead.
Negative signals are coming from manufacturing, where companies' profit expectations are subdued in both the USA and Europe. However, the first reports just presented for Q1 look better than the market had expected. Although as private consumption has been relatively strong in the USA, there is no pent-up need to purchase capital goods as is usually the case after an economic downturn. Household consumption may also be negatively affected if households' wealth in property, and not just equity, is undermined. If the US long rates continue to rise as they have done in recent years, this may be one of the consequences. A large part of Sweden's exports go to the euro area, which means that developments in economic activity here are particularly important. There are fewer signs of a recovery in Europe and the upturn in economic activity may be less strong. However, if one examines the leading indicators, companies appear to have become more optimistic. All in all, it can be concluded that growth prospects in the world around us have improved. The effects of the expansionary monetary and fiscal policy conducted on both sides of the Atlantic are becoming more tangible. The slowdown in economic activity therefore looks to be relatively limited. At the same time, there are risks. The structural imbalances in the US economy, which were built up during the end of the 1990s as a result of excessive optimism, are threatening to slow down the recovery.