At the same time, it is important to remember that the integration of China and India into the global economy will not only lead to a large increase in the supply of cheap goods and services; these countries will also contribute substantial demand for goods and services from the industrialised world. It is therefore no simple matter to assess the long-term significance of China and India for global price pressure. The integration of low-wage countries into the global economy through large-scale investment in export-driven growth is not a new phenomenon; another example is Japan, which developed in a similar manner after the Second World War. However, the size of China and India means that the adaptation process could be much more profound and prolonged this time. Moreover, this adaptation will occur in a global environment that is much more open and exposed to competition than has previously been the case. As yet, only a small percentage of the firms in the United States and the EU, including Sweden, have moved their production to countries like China, India and the new EU members in eastern and central Europe. Large differences in labour costs in particular mean that this redistribution of production capacity can be expected to continue in the near future. This development is supported by modern IT and by falling prices for international telecommunications.
Potential growth will then be at a higher level. On the other hand, increased demand from countries such as China and India combined with a synchronised economic upturn could contribute to the global output gap being closed more rapidly than we at present assume. In this case, inflation could rise earlier than anticipated. The major question is, of course, whether the low international price pressure will endure, and, if so, how long. One factor indicating that the developments we see now are a more lasting phenomenon is the combination of more independent central banks with inflation-targeting and increased global competition. In addition, rapidly-growing low-wage countries like India and China still have some way to go before they are completely integrated into the global economy. Events that could radically alter the picture are, for instance, increased protectionism and introversion, extensive armed conflicts and irresponsible fiscal policy. Protectionism may lie close to hand as a response to increasingly troublesome competition and difficulties in adapting national labour markets and production patterns, which is indicated, for instance, by the present US debate prior to the presidential elections. However, there is little that now indicates that these factors could grow sufficiently to outweigh the trend towards increased integration and globalisation. The conclusion is therefore that the low-inflation economy appears to have become established, although we cannot take it for granted. What consequences will this have for monetary policy in the future? Monetary policy in a low-inflation economy The target for monetary policy is price stability.