Before I go into these issues in more detail, let me say a few words about the basic principles for how we conduct monetary policy today in Sweden. The monetary policy strategy The objective of monetary policy, which has been established by the Riksdag (the Swedish parliament), is to maintain price stability. The Riksbank has specified this objective as limiting inflation measured by the consumer price index (CPI) to 2 per cent, with a tolerance interval of plus/minus 1 percentage point. Monetary policy is also guided by various measures of so-called underlying inflation. The measure most often used is the change of UND1X, which excludes mortgage expenditure and direct effects of changed indirect taxes and subsidies. We normally try to conduct monetary policy in such a way that inflation is expected to be in line with the target within a two-year period. This time horizon can be justified by the fact that monetary policy  1  See Rosenberg, I. “The Riksbank and monetary policy”, speech at Danske Bank, 29 September 2005. See also the box ”Changes in the Riksbank’s forecasting methods”, Inflation Report 2005:1. BIS Review 33/2006  1  actions have a time lag but also by a wish to contribute to holding back fluctuations in real economic activity. However, taking the real economy into consideration must not mean that the goal of price stability is set aside.
The most recent labour market statistics for the United States indicate a continued favourable development, although the monthly statistics for household consumption indicated some slackening of demand. The purchasing managers index for the manufacturing industry in March indicated a small decline for the United States, while the index continued to improve for the euro area. Other indicators for the euro area such as the European Commission’s surveys show a positive development recently. Growth in Asia has been stronger than we had assumed. All in all, my opinion is that international economic activity appears slightly stronger now than we assessed in the February Inflation Report. For Sweden, the assessment in the Inflation Report was that GDP growth would be relatively high in the coming years. Statistics Sweden has since then published national accounts for the fourth quarter  BIS Review 33/2006  5  of 2005. These figures show that GDP growth was somewhat lower than expected, although the outcome for earlier periods was revised at the same time in such a way that the growth for the whole year 2005 remainedl in line with the forecast. Recently, indicators have shown a relatively positive picture of the development of economic activity, for example, the business tendency survey, the retail trade index and statistics for foreign trade. The purchasing managers index for the manufacturing industry has, as has been the case in the euro area, indicated a clear improvement in industrial activity since the middle of last year and this development has also continued recently.