This was judged to be especially important at a time when we wanted to quickly generate public confidence in the new monetary policy regime. It was also considered reasonable to attempt to stabilise the value of money in terms of a basket of goods that had great significance for the average person. Additional advantages that are usually put forward are that the CPI is published regularly and comparatively often, and that CPI inflation is normally not revised. Looking back on the ten years or so that have passed since the introduction of inflation targeting, we can conclude that the CPI has worked relatively well as a target variable. When the target was adopted it was probably considered by many to be unrealistic. But during these years inflation has averaged close to 2 per cent. The credibility of the target is also high today, judging by the inflation expectations of households and other economic agents. I don’t think it’s an exaggeration to say that we, through the new policy with a target for the rate of increase in the CPI as an anchor, coupled with a successful consolidation of the government finances, have essentially succeeded in achieving what we had hoped for. Sweden has gone from being a high-inflation economy, characterised by recurring cost crises and unstable economic developments, to being an economy with low, relatively stable rises in prices and wages, where the risk of periods of overheating and subsequent recessions has been reduced considerably.
Due to the fact that the change in the general interest rate situation was both large and protracted, the CPI was affected for an appreciably longer time than one to two years. As the low CPI inflation was largely a result of the Riksbank's rate cuts and therefore was judged to be transitory, the Bank did not see reason to counter it through a further easing of monetary policy. During this period, however, the Riksbank was often asked why the repo rate was not lowered in spite of below-target inflation, which indicated the need for a more explicit explanation of policy. To this end we highlighted a new index as an important inflation measure, namely UND1X, which, among other things, excludes mortgage interest costs. The June Inflation Report in 1999, for instance, illustrates how UND1X was used to clarify the formulation of monetary policy. When the repo rate was left unchanged on this occasion UND1X inflation was forecast to be close to 2 per cent towards the end of the forecast period while CPI inflation was expected to be considerably below target.