The expansionary fiscal policy is contributing to a strong development of household disposable income in the coming years, providing a basis for higher private consumption as well as increased saving. Exports rise during the forecast period but the increase is relatively modest both on account of the international upswing being tentative initially and because the krona is expected to appreciate. GDP growth is judged to be 1.6 per cent this year and then accelerate to between 2.5 and 3 per cent in the coming years, which as fare as can be judged is somewhat more than the Swedish economy can sustain in the longer run without giving rise to inflationary tensions. With the high resource utilisation, labour costs are judged to rise somewhat more than we foresaw in the December Report. Partly for this reason, domestic inflation in the forecast period is somewhat higher than foreseen earlier. CPI inflation stops at 2.2 per cent one year ahead and 2.4 per cent after two years. The corresponding forecast for inflation’s underlying rate, UND1X, is 2.2 per cent both one and two years ahead. Monetary policy focuses in the first place on the latter rate. In this price forecast, the supply shocks that are now leaving their mark on inflation are judged to drop out of the twelve-month change figures successively during the late spring. Inflation is accordingly expected to approach 2 per cent in the early summer.
After that, however, it is foreseen that the more strained resource utilisation connected with stronger economy activity will lead to a renewed increase in inflation. The risk spectrum mainly concerns domestic inflationary pressure. If resource utilisation is more strained than the Riksbank now assumes or if potential growth has been overestimated, there is a risk of future inflation being higher than in the main scenario. When the risk spectrum is taken into account, underlying inflation, measured by UND1X, amounts to 2.3 per cent both one and two years ahead. Monetary policy conclusions I should like to conclude with some words about monetary policy. In the light of increasingly clear signs of an economic recovery and resource utilisation that is somewhat more strained than expected, the Riksbank has decided to raise the repo rate 0.25 percentage points, to 4.0 per cent. By safeguarding price stability, we aim to create conditions for a stable and sustainable development of production and employment in the Swedish economy. Last year’s higher inflation and our assessment that it was not solely transitory have already left their mark on monetary policy. That was the case not least last summer, when we raised the repo rate because of concern that the weak exchange rate combined with comparatively high resource utilisation might lead to the higher inflation becoming entrenched. In September we, like other central banks, cut the interest rate 0.5 percentage points; later in the autumn, however, we were more cautious about lowering the instrumental rate than, for example, the European Central Bank.