The reason we focus on inflation 1-2 years ahead is because monetary policy affects the economy and inflation with a certain time lag. This approach has served us well over the decade during which we have conducted monetary policy with an inflation target. Since the target was adopted, inflation has by and large averaged 2 per cent. At the same time, we have experienced better general economic progress than during the two preceding decades. The clear target coupled with our mode of action has also helped to make the Riksbank’s policy accessible to both the public and the financial markets. Inflation expectations have been anchored fairly stably around our target and it has been possible to predict our actions rather well. Nevertheless, there is cause to underline that we do not run on autopilot and mechanically change the repo rate in relation to our inflation forecasts. There may be reasons for us to wait before taking a decision in order to be able to perform more in-depth analysis or obtain more information. There may also be reason to take into account additional aspects in our decision rather than just inflation 1-2 years ahead. Such aspects could include how the economy in general would be affected, inflation in both a longer- and shorter-term perspective and the impact on financial stability. But it is important to have a framework that is as explicit as possible, with clearly defined and stated objectives. In this way, everyone can follow our line of reasoning, question it and comment on it.
For inflation in the years ahead, it is of course important that there are some unutilised resources to begin with. So what can we expect in terms of inflation developments? In this respect, the outlook has gradually undergone a number of more marked changes since the end of the autumn. Principally, as a result of lower expected increases in wage costs and better productivity growth, unit labour costs are expected today compared with in December to grow a number of tenths slower in the years ahead. Normally, there are few factors that are more significant for inflation a few years ahead than unit labour costs. In addition, international price pressure is muted. Against this background, most factors suggest that inflation in the next two years will be below the Riksbank’s target. Also with regard to the various risks to economic activity and inflation, I believe there is cause to reason somewhat differently than in December. As the economic upswing is gradually confirmed, the risk of a setback in the coming two years will diminish. Correspondingly, the probability that economic activity could prove unexpectedly positive and that the upswing will be quicker than anticipated is also likely to increase. However, this does not mean that there are no downside risks whatsoever in the short term. One such risk is that the weak labour market in the US or in Sweden - confirmed by the latest data - will worry households and dampen their consumption.