Meanwhile, productivity growth has continued to be higher than expected and we believe that it may rise even further in the near future. Inflation has also been a little lower than anticipated. We are expecting a low underlying inflationary pressure in the short term, but this will probably increase as economic activity picks up. However, import prices are very important to our assessment of future inflation. These have had a significantly subduing effect in recent times, but an upward turn appears probable over the coming year. All in all, our assessment is that inflation will begin to rise later this spring and gradually approach our target level two years ahead. However, we do not believe that this upturn will be particularly dramatic. Let me emphasise that the changes that have occurred since our December meeting are not particularly great. They mainly entail some signs that domestic cost pressure could be lower than anticipated. As early as December we made some adjustments to our estimates in this respect, but the signs were fairly new then and a majority of the Executive Board preferred to await further information that would make the picture clearer. Given this, the assessment was that inflation would be slightly lower throughout the forecast period than was assumed in December; a conclusion that was not particularly sensitive to the choice of  BIS Review 9/2004  5  inflation measure. The Executive Board of the Riksbank therefore decided to cut the repo rate by 0.25 percentage points.
Some analysts have pointed to the possibility that the recent productivity increase could be at least partly due to IT capital now making an efficiency impact on production even outside the sectors producing IT capital, where it has enabled rationalisation of labour and a reduction of the investment requirement. This theory thus explains the combination of rapid productivity growth, weak employment growth and a slow increase in investment, which has recently characterised both the US and Swedish economies. So what - apart from the actual developments in productivity, employment and investment - indicates that this is the explanation? One piece of the puzzle that supports this theory is that the improvements in productivity can scarcely be explained merely by business cycle effects. This becomes clear if we study productivity growth in the corresponding phase of the business cycle during earlier periods (Figure 5). The measure of economic activity we have chosen is, however, more or less arbitrary and does not entirely correspond to the assessment of resource utilisation in the Riksbank's Inflation Report. Nevertheless, this does not appear to affect the general conclusion that productivity growth is unusually rapid at present, bearing in mind economic activity and could thus be a sign of a sustained change. BIS Review 9/2004  7  5.