The prices of goods we import are also affected at the consumer stage by conditions in Sweden, for instance, via transport costs, price mark-ups by wholesalers and retailers and also by the value of the krona. When the Riksbank raises the repo rate, total demand in the economy is dampened. This reduces the scope for price increases in all areas. And it is important that monetary policy focuses on keeping down the general price increases and that the inflation target is not redefined merely because some prices are rising more than others. Swedish households’ total purchasing power declines even when prices of imported products rise. So the risk of such price increases spreading to other prices and to wages will scarcely decline just because the inflation target is defined in terms of domestic prices. It is also important to distinguish between the measure of inflation to which our target applies and measures that are useful from time to time to analyse the driving forces behind inflation. The Riksbank often highlights the development of other measures to describe developments in inflation and explain the monetary policy strategy in a better way. For example, last autumn one measure that was useful was CPIX excluding energy. This could illustrate that we were assuming that energy prices would push up inflation temporarily but that the inflation trend would not be affected. But then is the CPI really the best measure for our inflation target?
And businesses are unlikely to want to expand while capacity is lying idle and there is still much uncertainty about the outlook for demand. But the substantial depreciation of sterling – down nearly 25% since the start of the crisis – should, over time, help to boost the contribution of net exports to UK growth. We have seen some of the fruits of that in the robust performance of manufacturing over the past year. As I already noted, the economy began to grow again more than a year ago, in the fourth quarter of 2009. And over the first year of the recovery, growth was around the UK’s historical average rate. In part, that was on the back of the boost to growth from a slowing in the rate of inventory de-stocking. Given the prospective fiscal consolidation, the maintenance of such growth rates requires a pickup in the contribution of private domestic final demand and in net exports. In our November Inflation Report, our central view 3 , predicated on market interest rates, was for the recovery to be maintained, with the boost from a stimulatory monetary stance and from the past depreciation of sterling offsetting the continuing headwinds from de-leveraging and fiscal consolidation. Since the November Report, we have, of course, had the first estimates from the ONS of growth in the final quarter of last year. They suggest that the economy contracted by 0.6%. In part, that was down to the disruption caused by the snow.