At our monetary policy meeting in May we were able to observe that the new information received since the publication of the Monetary Policy Report in February indicated higher inflationary pressures than we had predicted. One reason was that the result of the spring wage bargaining rounds indicated that wages could increase more quickly during the forecast period than we had estimated in the main alternative in the report published in February. The motive for high wage increases not being part of our main scenario was that we considered that the spare capacity in the labour market still appeared substantial, which would slow down the rate of wage increase. How high wage increases will be in total will depend not only on the collective wage agreements, but also on how much wages rise outside of the agreements. As I mentioned in May, it is reasonable in the currently strong labour market situation to count on wage increases outside of the agreements being higher than they have been in recent years. How high will depend on how well the labour market functions. I pointed to a number of important questions then. Will the labour supply increase to the extent expected? Will the matching of demand for and supply of labour function? How will the stronger labour market situation affect wage negotiations? At the May meeting we were also able to observe that the statistics received for the first quarter showed a slightly more strained labour market situation than we expected to see in February.
The fact that forecasters revise their assessments is not at all strange, as new information is received all the time. This indicates that as the conditions for the real economy change and new information is received the forecasts for the repo rate path need to be adjusted. There is nothing particularly dramatic about this. It applies to all market agents, to the major banks, to the Ministry of Finance and also to us at the Riksbank. The great uncertainty factor means that all forecasters should be humble, but this should not prevent them from making forecasts. I would therefore like to emphasise once again that the repo rate path we present in the Monetary Policy Report is a forecast and not a promise. The Riksbank cannot undertake, regardless of what  BIS Review 62/2007  3  happens in the economy, to follow the path published. The interest rate path is quite simply the best assessment we can make at a given point in time, given the information that is then available. New information may change the picture of the economy and then the Executive Board will have to rethink how we set the repo rate. The reason why we have chosen to publish our interest rate forecast despite the uncertainty over the future is largely because we believe this is the best way of explaining our thoughts on monetary policy. It also makes it easier for us to justify forecasts and interest rate decisions and to outline alternative scenarios for the repo rate.