Inflation target and transparency When the Riksbank originally decided to adopt an inflation target, time was short and did not permit extensive analyses. In my opinion, experience to date of the inflation target policy has been favourable. One major advantage of having an established and distinct inflation target for monetary policy is that this can be combined with transparency. Market agents can form a clear picture of the grounds for the Riksbank’s actions. It is, moreover, comparatively easy to understand how the policy functions, which should help in gaining public support for the target. The inflation target is an instrument for stabilising expectations about the conduct of monetary policy; a lack of transparency and distinctness in monetary policy makes it more difficult for inflation expectations to adjust to the target. This in turn can make it more difficult to achieve high, stable growth. In recent years the Riksbank has accordingly been aiming for greater transparency. A highly qualified staff has been built up, intensive efforts have been devoted to developing models and analyses, routines have been constructed for monetary policy preparations and decisions, and a new interest rate management system for monetary policy has been launched. The endeavour to promote transparency is evident in the Riksbank’s participation in public hearings by parliamentary committees, in inflation reports, speeches, discussions and seminars of various kinds, and in the publication of specialist reports.
All those with a say in price and wage formation must also realise that the Riksbank’s endeavour is to fulfil the inflation target. The repo rate increase in December was therefore important when the overall assessment of future inflation pointed to the target being exceeded. Inflation outlook somewhat more favourable Information of some relevance for the assessment of future inflation has become available since the December report. It concerns the crisis in Asia, the early stages of the wage negotiations, and the rent negotiations. The crisis in Asia has deepened both in terms of its effects on financial markets and as regards its probable consequences for global economic growth and inflation in the coming years. The extent of the effects cannot yet be assessed reliably but there are many indications that they will be greater than most people envisaged at the end of last year. This  BIS Review 5/1998  -7-  suggests that in the coming months the statistics will point to a more subdued growth of Swedish exports and industrial production. Some wage agreements have been concluded, for instance for the paper industry. They still cover just a small segment of the labour market but many observers consider that the existing settlements will serve as a guide elsewhere. It is difficult to arrive at a definite assessment of what these settlements imply for total wage increases but a cautious conclusion could be that the outcome will be somewhat below the Riksbank’s estimate in the main scenario, at least for 1998.