If the consumers’ confidence with regard to the future were to decline, together with rising unemployment and a weak development in the stock markets, there was a great risk that activity in the US economy would be subdued. Companies often react to uncertainty with a “wait and see” policy, which means that they postpone investments. In addition, there was uncertainty as to whether the financial system could cope with the problems arising as a result of the devastation in New York. On top of this, certain sectors in the global economy would be hit directly, for instance, insurance companies, airlines, tourism, etc. All of this risked worsening the economic downturn both in the USA and in other countries. The role of a central bank in this type of situation is to contribute to creating confidence and promoting financial stability. It is then important to act quickly and resolutely. This may be considered to contradict the claim that it is important for the Riksbank to act predictably. However, for those who have observed the central banks’ actions on other occasions when problems in the financial system have arisen and confidence in the future has declined, such as in 1987 and 1998, it should be no surprise that central banks act to support the economy with a lower interest rate and greater supply of liquidity. This is to counteract a downward spiral in the global economy as the result of a decrease in the willingness to take risks.
With regard to prices, inflation increased slightly more than expected in 2001. This can be partly explained by unexpected price increases on, for instance, fruit and vegetables; the price of these product groups will probably continue to increase slightly more than expected in the short term. Imported inflation has increased more than expected in both the producer and consumer areas, which could be due to the exchange rate’s effect on prices being slightly higher than assumed. However, price increases have also been broader and higher than expected for other goods and services. My view of the current situation So how do I assess the situation in which we find ourselves today? Firstly, I feel that confidence in the future and willingness to take risks appear to have recovered from the shock of 11 September. But what will happen to inflation? There are three reasons why inflation should fall this year. The first is that growth in demand and utilisation of resources were both lower than expected last year, which subdues price pressure for the near future. The second is that inflation expectations are disposed towards a decline in inflation, according to recent surveys. And the third is that the krona has appreciated slightly, which means a lower risk of imported inflation. On top of this, the effects of last year’s price rises on certain goods and services, including food and energy, will gradually abate. However, there is also a risk that the price rises will not abate on their own.