An improvement in the workings of the economy can show up just as a larger supply of resources, be they capital or labour. To date in 1999, for instance, employment has been provided for more than 100,000 people without any signs of appreciable shortages. To me at least this is a welcome surprise. But one should not make too much of it; if we have in fact seriously misjudged how the labour market is functioning, one would expect wage increases to be lower than has been the case. It is also worth noting that the rate of wage increases in Sweden continues to be higher than elsewhere. Another difficult matter is the effect on inflation from a given level of resource utilisation. This was examined in a box in the latest Inflation Report. The results suggest that the Swedish economy can cope with somewhat higher resource utilisation than before without an acceleration of inflation. There is also a good a priori case for this. Raising prices, for example, should be more difficult in an economy where prices fluctuate less. It follows that firms should then put up more resistance in wage negotiations. It is also conceivable that increased international competition, for instance, has left firms with less room for price increases, at least for a time. Finally, then, what about the role of inflation expectations? They have indeed come down substantially in the 1990s, from 6–8% to 2%.
Economic growth in the United States had been higher than expected and the first signs of a recovery in Europe were now visible. Meanwhile, a distinct upturn in the Swedish economy was increasingly apparent. The forecasts were revised upwards and the Executive Board now agreed that further interest rate reductions were no longer on the agenda. By the middle of August, at the monetary policy meeting on the 12th, the picture of a stronger economic development in Sweden was even clearer. The Board therefore concurred on a high future growth rate that would call for a tighter monetary stance. But price increases were low and the available statistics, on capacity utilisation and the labour market, for example, did not point to a rapid future increase in inflation. The Board’s majority therefore considered that an immediate tightening was not needed. With inflation expectations firmly anchored around the 2% target, we judged there was scope for waiting with an interest rate increase. Calmer monetary policy discussion Some of the earlier autumn conferences were preceded by monetary policy discussions that were rather intensive. In that respect the past year has been relatively calm, even though the situation has changed so rapidly. Last autumn there was, of course, considerable anxiety but the Riksbank’s quick succession of interest rate cuts was well received. In Sweden, moreover, we were spared most of the European discussion about political pressure on monetary policy.