At the same time, productivity in Sweden has not increased as quickly as in other countries. The development of unit labour costs reflects the difference between wage increases and growth in productivity. Unit labour costs, measured in the respective currencies, are shown in the column on the far right of the table. Sweden is here on the same level as Germany, but higher than the euro area as a whole and also higher than the OECD aggregate. Inflation towards the target – in an orderly manner Let me round off. One main purpose of my speech is to show how important the inflation target has been as a benchmark for price-setting and wage formation in Sweden. It is an important task for the Riksbank to create confidence in the inflation target. This is why we are worried over the current low inflation rate. The Riksbank wishes to safeguard the inflation target. We can do this by formulating monetary policy so that the current low inflation rate rises towards the target. During the spring we have therefore cut the policy rate further on two occasions and moreover decided to buy government bonds. We are prepared to do more than this if it proves necessary. At the same time, it is important that the journey back towards the inflation target is a smooth one and does not pose any threat to production and employment. We are now on the verge of very extensive wage bargaining rounds.
If we look at the period from 1993 up to the end of 2014, the average rate of inflation was 1.5 per cent. The figure also shows that the variations from year to year have declined since the inflation target was introduced. A related question here is how high inflation has been since the Industrial Agreement was drawn up in 1997. The answer is that the average annual rate of inflation has been 1.2 per cent since then. Figure 2 shows the average value for annual inflation over six three-year periods since 1997. These three-year periods roughly follow the agreement periods. 2 Actual inflation has been close to the target for three of the agreement periods. During the other three periods, inflation has been much lower. After two periods of being close to the inflation target, average price levels have not increased during the most recent agreement period. How have wages developed since the inflation target was introduced? During the period 1970–1992, when there was neither an inflation target nor an Industrial Agreement, nominal wages in the whole of the Swedish economy increased by on average 8.9 per cent a year. This is shown in Figure 3. But as inflation was so high, the increase in real purchasing power was very limited. Real wages actually increased by an average of only 0.7 per cent a year. During the period 1997 to 2014, nominal wages in the Swedish economy as a whole have increased by an average of 3.3 per cent per year (see Figure 3).