Moreover, the fact that the considerations are reported openly may help increase confidence in the assessments and conclusions. Consistency in monetary policy actions also increases confidence in the price stability target, which in turn should have a stabilising effect on inflation expectations. The role of predictability in monetary policy It is important the Riksbank is clear and explains the bases on which the interest rate decisions are made. As the effect of monetary policy on price developments has a time lag, the interest rate is changed on the basis of forecasts of future price developments. However, it is not always easy to interpret correctly what is happening in the economy. In recent years it has been difficult to find a clear relationship between the demand situation and inflation in Sweden. GDP growth was high from 1997 to the middle of 2000. Since then the growth in demand has been subdued. During 1997 and 1998 inflation fell, but the rate of price increase has tended to accelerate thereafter. At the same time, inflation expectations have remained at a relatively stable level. There are many explanations for this development and the Riksbank’s view has been described, for instance, in various Inflation Reports. Let me here expound some personal reflections on this issue. If the Riksbank’s monetary policy inspires confidence, inflation expectations will be established around the inflation target. This means that resource utilisation in the economy could vary slightly more, without having an immediate impact on inflation.
We are benefitting from strong demand for our exports – especially E&E and commodity-based products. Our diversified export products and markets will continue to support our export growth. Importantly, we are seeing increasing strength in domestic demand. Domestic spending, especially consumer expenditure is on the rise. In fact, retail sales, debit card transactions and consumer goods imports have exceeded their pre-pandemic levels. The economy is also benefiting from a strengthening job market. While unemployment was at its peak of 5.3% in May 2020, it is now at 3.9%. Almost 26,000 new jobs were created in the first three months of this year, similar to pre-pandemic levels. Job vacancies and wages are also rising. This will further reinforce the recovery in domestic demand going forward. That said, there is some unevenness in the economic recovery. Certain segments continue to experience hardship and remain vulnerable. These include low-income households who are disproportionately affected by rising price pressures. The rise in food prices in particular, has affected this group to a larger extent. Improvement in employment for women and youth is also significantly slower. Indeed, rising prices is a global phenomenon. For Malaysia, the direct impact from elevated oil prices to headline inflation has been largely dampened by price controls on fuel and essential food items. Yet, there are still indirect effects from high global commodity prices, as they are a key driver of the rise in producers’ input costs.