The present adjustments imply that there are less unutilised resources that can be brought into production without this leading to a rising rate of price and wage increases. That in turn affects the prospects for future  2  BIS Review 19/2002  inflation, particularly as economic activity, in Sweden as well as elsewhere, seems to be improving and overall economic policy is expansionary. This analysis has ramifications in the labour market. The general weakening of demand during 2001 did not show up in employment. Unemployment has been more or less stable. Both the economy as a whole and the labour market show signs of a dichotomy; industrial output and employment have fallen, accompanied by an increase in demand and jobs in the services sector. At the same time it is mainly in services that wages and prices have risen. Thus, in the light of what has been happening to prices and wages during the past year, the Riksbank has gradually arrived at a somewhat altered view of the Swedish economy’s inflation propensity. Higher resource utilisation, together with higher wage increases and a weak exchange rate, has led to somewhat stronger inflationary pressure. This affects the forecast we are presenting today. Meanwhile, we are, of course, continuing the work of developing our analysis and interpreting new data as they become available. Rising inflation All in all, in the Inflation Report the Riksbank notes that incoming statistics confirm the impression that activity in Sweden has probably stopped falling.
It is a natural consequence of the Riksbank being in earnest about its task of ensuring a rate of price and wage increases that is in line with the inflation target in a situation where economic activity in Sweden is become gradually stronger. Here I am prompted to refer to what Knut Wicksell, the well-known political economist, pointed out in his day; it is a matter of looking for the “natural” rate of interest at which the economy can expand without prices and wages rising too quickly. 4  BIS Review 19/2002