Our assessment is that unemployment will reach approximately 6.5 per cent at the end of the forecast period (see Figure 19). A lasting  BIS central bankers’ speeches  5  reduction in the level of unemployment also demands that wage formation is effective so that costs in the business sector do not increase too rapidly. …and inflation can approach the target A new round of collective bargaining has now begun and the wage demands presented so far are higher than those presented in 2010. The Riksbank’s assessment is that wages will rise by almost 3.5 per cent per year in the years ahead. This is compatible with the inflation target. The assumption behind our forecast is that wage formation will work as well as it has over the last 15 years. Responsibility for this lies with the social partners. The krona is an important factor for inflation in Sweden as it determines how prices abroad are “translated” into import prices in Sweden. Historically the krona has weakened in periods of financial unease as investors often move their money from small currencies like the krona to the dollar and the euro. However, the krona has weakened only moderately this time, despite the financial unease (see Figure 20). We expect the krona to gradually strengthen as the financial unease subsides. The combination of falling commodity prices internationally and a stronger krona means that inflationary pressures from abroad will be rather low in the period ahead.
The development of real wages shows how much of the wage increases are left when a deduction is made for inflation. Real wages have increased by an average of 2.5 per cent since 1995, while they did not increase at all during the 1980s (see Figure 15). In real terms, wages have thus developed much better over the last 15 years than during the 1980s. The third area relates to inflation and monetary policy. Monetary policy was also changed in the light of lessons learned in the past, in this case during the periods of high inflation in the 1970s and 1980s. An explicit inflation target and an independent Riksbank have had a positive impact. Inflation has been low and stable since the mid-1990s and has largely been in line with the target (see Figure 16). The success of the inflation-targeting policy is also linked to the fact that fiscal policy and wage formation have been much more effective since the mid-1990s. We have thus learned from the past, and as a result Sweden’s economy is well equipped to meet the future. It is important that we make the most of this strong initial position in the period ahead, and monetary policy must of course play its part in this. So, what course can we expect development to take in Sweden in the future, and how can monetary policy help to smooth the way?