The increase may be a way of safeguarding the real economy in the long term A common reaction to the decision to increase the interest rate was that the Riksbank pays too much attention to inflation and too little attention to the real economy. I would like to comment on this claim. One reason for increasing the interest rate was that an increase was needed to prevent the high level of inflation from becoming entrenched. This could happen if the price increases for energy and food begin to spread to other areas. This could ultimately lead to a risk of the Riksbank's ability to hold inflation in check being called into question and of inflation expectations remaining at a consistently high level. This is what happened in the 1970s in many parts of the world, although inflation at that time became entrenched at much higher levels than would be the case today. But even though the levels are much lower today, it could still be relatively costly to get inflation back to the target. It cannot be ruled out that this could require quite a long period with high interest rates and restricted demand. There is thus a risk that conducting too expansionary a policy today would sooner or later give rise to costs in the real economy that, furthermore, could be quite considerable. I do not feel, therefore, that it is correct to say that the increase in the interest rate is an indication that the Riksbank does not care about the real economy.
In our latest assessment this was based on the belief that inflation was somewhat higher than now proves to be the case. But monetary policy does not have such a degree of precision that it can control inflation to a tenth of a degree. And, moreover, inflation in July was high and far above the inflation target even after the downward revision of the figure. In the discussion ahead of the interest rate decision, I and other members of the Executive Board highlighted the weak labour market indicators which uniformly pointed to a weaker development of employment, which is also in line with the Riksbank's forecast. After the decision, the Labour Force Survey for August has been presented. This shows that employment increased by a moderate 0.5 per cent on a 12-month basis, which is marginally lower than the Riksbank's forecast. At our September meeting, we had access to the initial version of the National Accounts for the second quarter. These showed that GDP did not increase at all compared to the previous quarter and increased by only 0.7 per cent on a calendar-adjusted12-month basis. Now that the revised version of the National Accounts has been published, we can see that growth in the first two quarters has been marginally adjusted downwards in both cases. This means that growth in the first quarter was 2 per cent on a 12-month basis and with calendar effects taken into account. The corresponding figure for the second quarter was 0.6 per cent.