If international activity were to move into a recovery, most things suggest that demand in the Swedish economy would start rising more rapidly again from a level of resource utilisation that is already relatively high. The earlier restrictions would then be back on the agenda, with the attendant risk of higher inflation. During the past week, new statistics on prices have been published and show that the rate of inflation has picked up more than expected. Although higher than expected inflation figures should be taken seriously, it is nevertheless important not to overemphasise them. The recent pick-up in inflation is to a large extent a consequence of a few very special factors that could prove to be temporary. The price increases for petrol, electricity, and meat could be examples of this. At the same time, resource utilisation in the Swedish economy is at a high level and there is thus reason to closely monitor the trend rate of inflation (i.e. excluding the mentioned special factors), which has been slowly moving upwards from last year's very low levels. If the storm clouds in the international economic skies were to disperse and growth were to improve, there is a risk of tensions arising that could require a tightening of monetary policy. On the other hand, it cannot be ruled out that the downturn in the U.S. economy will be more pronounced. In such a scenario the Swedish economy could experience a more pronounced slowdown, stemming through various channels from weaker exports, investments and private consumption.
In that case the Swedish repo rate is more likely to be lowered somewhat. My conclusion is that the future path of the U.S. economy is highly important for economic developments in Sweden. The situation is difficult to assess and the appraisals our Executive Board has to make are more difficult than usual. Probably the only way to arrive at a clear assessment of the balance of risks is to wait a while and see in which direction developments appear to be moving. 4  BIS Review 42/2001