It will probably take a long time to gain a general view of the extent to which international banks and other financial institutions will be forced to write-down losses. One relatively late consequence of the crisis was the problem for the so-called monolines, that is, insurance companies that insure bond loans. Many of them risked being downgraded by the credit rating agencies and this has since been the case for several of them. As I saw it, these problems could lead to a substantial credit crunch. Developments on the world’s stock markets were another clear expression of the financial turmoil. Since the international stock market fall began last summer, and up until the February monetary policy meeting, prices on the largest stock exchanges had fallen by between 15 and 30 per cent. Just since the beginning of the year prices had fallen by 10-15 per cent. It is difficult to predict how the existing turmoil on the financial markets will affect developments around the world and in the Swedish economy. The financial sector in Sweden is outside of the worst crisis area since it has small direct exposures to the most problematic areas of the securities markets, but my assessment was that the Swedish economy would be affected by a continued crisis with abnormally high interest rates and elements of credit rationing. The problems in the US housing market also continued. According to real estate statistics, house prices had fallen in all regions.
The outcome had not been published at the time of the monetary policy meeting, but it was largely as expected. Households in the euro area appear to have been very restrictive with their consumption expenditure. Retail trade turnover fell at the end of last year and it is also possible to discern from survey data that household confidence has declined. As in the United States, more prolonged problems in the financial markets can lead to developments being weaker than in the main scenario. My view in February of developments in Sweden Inflation has gradually risen in Sweden in recent years. On average, measured in terms of the CPI, inflation was 2.2 per cent last year, which is close to the inflation target. The upswing in inflation was partly due to resource utilisation in the economy having increased and cost pressures having risen. Hourly wages increased more rapidly than before at the same time as productivity growth slackened considerably. Inflation has been very low for several years, but in 2007 rising cost pressures were a factor that contributed to inflation reaching the target. Underlying inflation, measured in terms of the CPIX, was however 1.2 per cent as an average for 2007. During the autumn of last year inflation rose very quickly and, measured in terms of the CPI, reached 3.5 per cent in December. Underlying inflation, measured in terms of the CPIX, rose to 2 per cent in December.