However, of course the Riksbank does not react in a mechanical manner to a measured change in inflation expectations. The Riksbank currently monitors a number of indicators of future inflation developments and, responses to its surveys about inflation expectations are just one of many. By way of conclusion there is reason to call attention to the fact that inflation expectations to an ever greater degree are being guided by the inflation objective and not by our or others’ discussions of the risks of inflation. The signs of this are clear. The expected inflation has crept down markedly and has now been stabilised in the vicinity of the objective for most of the groups currently monitored by the Riksbank. This is a profoundly positive development, which actually facilitates the monetary policy task. (Diagram 4.
These indirect effects account for part of the widening incidence of above target inflation developments across a broad set of core goods and services components of the overall index. Third, these shocks have been large. Again, it is useful to use energy prices as an example. Page 5  Looking at the daily data, from its trough in May 2020 at 8 pence per therm, spot UK natural gas prices rose to above 500 pence per therm in the immediate aftermath of the invasion of Ukraine. Taking a wider perspective, we have seen European wholesale gas prices rise by more than 300% over the past year, while electricity prices have risen 30% and oil prices by 50% over the same period. And fourth, since the UK is a net importer of goods and energy, these large rises in international goods and energy price represent a deterioration in the UK terms of trade. Simply put, the goods the UK buys from the rest of the world have become more expensive relative to the services it sells. Other things equal, this will weigh on the international purchasing power of UK residents. In practice, we anticipate a squeeze on UK household real incomes, which constrains domestic spending and demand, and threatens to open up a margin of economic slack and eventually higher unemployment in the UK. So it is not just UK inflation that is affected by the large external price shocks, but UK incomes, spending and employment too.