This picture has been confirmed by the latest National Accounts data and was underlined as early as in our December assessment. Since then it has become clearer, and the somewhat better productivity was an important argument for the rate cut in February. It is likely that the more robust productivity has partly been due to the developments in economic activity; at the beginning of a recovery, existing production resources are utilised more efficiently and only when the revival has been established will a rise in investment and new jobs begin in earnest. But this explanation is not enough since productivity appears to have risen more than normal given the economic situation. This pattern is very clear in the US but is also somewhat discernible in Sweden. One possible interpretation is that it is due to unusually large-scale investment in, for instance, IT at the end of the 1990s. It is also conceivable that it reflects more permanent changes that could be related, for example, to technological advances in IT and telecommunications. At present, it is not possible to determine exactly what has caused the improvement in productivity. However, when we look ahead to the coming years, we see reason to expect a better productivity outlook than that we had in December. The new inflation data that have been received also point to somewhat more subdued inflationary pressure.
The reason we focus on inflation 1-2 years ahead is because monetary policy affects the economy and inflation with a certain time lag. This approach has served us well over the decade during which we have conducted monetary policy with an inflation target. Since the target was adopted, inflation has by and large averaged 2 per cent. At the same time, we have experienced better general economic progress than during the two preceding decades. The clear target coupled with our mode of action has also helped to make the Riksbank’s policy accessible to both the public and the financial markets. Inflation expectations have been anchored fairly stably around our target and it has been possible to predict our actions rather well. Nevertheless, there is cause to underline that we do not run on autopilot and mechanically change the repo rate in relation to our inflation forecasts. There may be reasons for us to wait before taking a decision in order to be able to perform more in-depth analysis or obtain more information. There may also be reason to take into account additional aspects in our decision rather than just inflation 1-2 years ahead. Such aspects could include how the economy in general would be affected, inflation in both a longer- and shorter-term perspective and the impact on financial stability. But it is important to have a framework that is as explicit as possible, with clearly defined and stated objectives. In this way, everyone can follow our line of reasoning, question it and comment on it.