Panel d shows the equivalent forecasts for CPIF inflation.2 Panels e and f show equivalent forecasts for two measures of resource utilisation, the output gap in panel e and the hours gap in panel f.  2  One may ask why CPIF should be focused on and not CPI. In a situation in which extensive repo rate changes have very large direct effects on CPI, I consider it to be more appropriate to focus on stabilising CPIF around the inflation target, instead of CPI. BIS Review 22/2010  3  Panels b and c in Figure 1 also show the mean squared gaps, which were introduced in an article in the Monetary Policy Report in October 2009.3 The mean squared gap for inflation measures the deviation between the inflation forecast and the inflation target or, more precisely, the mean squared gap between the inflation forecast and the inflation target during the forecast period. A lower mean squared gap for inflation entails a forecast of inflation closer to the inflation target, that is a better stabilisation of inflation around the inflation target. The mean squared gap for resource utilisation, measured as the output gap or the hours gap, measures the deviation between the forecast for resource utilisation and normal resource utilisation – more precisely, as the average squared gap during the forecast period. A lower mean squared gap for resource utilisation thus entails a better stabilisation of resource utilisation around a normal level.
In the most recently published inflation assessments, it was assumed that the price stability target was not threatened during the forecast period despite the growth of demand being so strong that use of capacity was under strain at the end of the period. The majority view of the Executive Board was therefore that there was no reason to increase the repo rate. This assessment was based on free resources in the initial situation, good productivity growth, low price increases on certain recently deregulated areas, low import prices and finally low inflation expectations. It is not per se strange that GDP can increase as much as 3-4% for a couple of years without inflation sharply accelerating, if the use of resources is low initially. If the pattern from previous cyclical upswings was to be repeated, price pressure should now increase. However, it has proven difficult to identify any exact and very stable correlation. As I mentioned earlier great changes have taken place in the Swedish economy. While there are still considerable deficiencies in competition in many areas, it is nevertheless not probable that inflation will accelerate strongly in the next few years. An important reason for this is that the price stability target has now  BIS Review 48/2000  4  obtained such strong support that inflation expectations are not increasing despite a cyclical upswing that is stronger than for a very long time.