To avoid ending up in a such a dilemma in future, we can decide to take into account inflation developments after the target horizon. From what I have said until now, it is evident that our monetary policy decisions are normally based on the main rule that says that we should aim at keeping CPI inflation at two per cent 1-2 years in the future. However, on every occasion when decisions are made, we must consider how to relate to the guidance provided by this simple decision-making rule. This assessment is based on the extent to which the main rule leads to unacceptable macroeconomic costs in the form of fluctuations in employment and output. However, departures from the rule must not damage credibility in the inflation target or lead to inflation expectations being affected. As we have gained experience and increased our knowledge, we have clarified how we intend to apply our decision-making rule. We will in all probability, continue to obtain new insights and be confronted by unexpected events. This means that we must continuously evaluate and review our strategies. Independence requires openness A very important part of our strategy, which I have not taken up before, is openness and transparency as to how monetary policy is conducted. This part can hardly be reconsidered. The Riksbank’s independence creates good conditions for achieving and maintaining credibility for the price stability target.
In order to counteract, for instance, that certain changes in charges lead to CPI exceeding the target, we would be obliged to carry out a monetary policy that would either lead to the use of resources in the economy being too low or too high. Provided that inflationary expectations are not affected, we can, to avoid unnecessary fluctuations in output, therefore decide in certain cases to conduct a monetary policy that leads to the CPI target not being achieved in a 1-2 year time perspective. For instance, we have normally decided to disregard certain factors that affect CPI by focusing monetary policy on UND1X - a price measure that disregards housing costs and indirect taxes and fees. Concern for macroeconomic stability can in certain cases also justify our extending or shortening the time horizon. It is, for instance, conceivable that it may be justified to extend the target horizon if we make the assessment that there is a risk of a substantial increase in inflation immediately after the normal horizon. If, in such a situation, we wait to increase the interest rate and thus comply with the main rule, we could subsequently end up in a situation where we were forced to increase the interest rate very sharply to avoid inflation expectations accelerating and persisting when inflation rises  BIS Review 98/2000  4  rapidly. However, a large interest rate increase would have negative effects for output and employment in the short term.