We have  BIS Review 115/2008  3  experienced many years of extremely good economic growth and low inflation. Now we must be prepared for high inflation, higher interest rates and lower employment possibly leading to a deterioration of the finances of many Swedish households over a couple of years. Monetary policy often comes into focus in this type of situation. The recent debate – is the Riksbank chasing inflation spectres? The Riksbank’s interest rate increases have been much discussed recently. It has been said that the Bank is chasing a non-existent inflation spectre, that the inflation target should be scrapped or reformulated, and that the Riksbank should take more notice of economic activity than inflation. To begin with, inflation is a real problem for many households. Inflation means that everyone gets less for their money. Oil, electricity and food prices have risen substantially. These goods are an important part of household consumption. Together food and energy comprise approximately one quarter of the CPI. The fact that, for instance, oil and food prices have risen so much here in Sweden is largely because these goods have become more expensive in the world market. Should the inflation target be reformulated? Some of the recent criticism has concerned whether the inflation target should apply to some other measure than the CPI. The idea is that monetary policy should stabilise around a measure of inflation that excludes import prices. The Riksbank is in any case unable to affect prices in the world market.
Stefan Ingves: Financial turbulence, monetary policy and inflation Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, to SACO, the Swedish Confederation of Professional Associations, Stockholm, 24 September 2008. *  *  *  When storms are raging in the world around you and the course is affected, it is important to keep focus on where you are heading. Take in as much information as possible and steer back towards the target in the way that provides the best journey home. In a way, this is how the Riksbank tries to conduct its monetary policy. The inflation target is to provide economic stability, in particular when there is turbulence in the world around us. The original idea was that I would come here today to talk about monetary policy. And I will do so. But the international turmoil, particularly in the financial markets, has escalated in recent weeks. I would therefore like to begin first by saying a few words about this, and about the measures taken by the Riksbank and others to counteract the effects of the financial crisis in the United States. The financial turbulence One can say that the Riksbank is active in two main areas. One is monetary policy. The other is what is usually known as financial stability – promoting a safe and efficient payment system, as it is written in the Sveriges Riksbank Act. To simplify, this means ensuring that payments in the Swedish economy can be made securely and efficiently.