We were unanimous on the one decision to raise the interest rate by 0.25 per cent, but not on the other decision regarding the interest rate path. The majority of the Executive Board members considered it reasonable to have an interest rate path that involved a substantial probability of a further two increases during the year, while the minority considered it reasonable to have an interest rate path that involved some probability of one further increase. The minority’s assessment was that the slowdown of the economy that is now  BIS Review 100/2008  5  taking place would dampen inflationary pressures to a greater extent than assumed in the main scenario. There would therefore be less need to continue increasing the interest rate. 4. Developments during the summer  I have earlier discussed what happened during the summer in the world around us. The trend of falling growth and rising inflation has broadly continued. One important change is that the oil price and other commodity prices have begun to fall, which may further slow down price increases. The dollar has risen in value against the euro and the krona, which also means that the krona has weakened against a weighted average of other currencies. The financial market turmoil has also continued. I intend to conclude by summarising the important new information on developments in the Swedish economy since the monetary policy meeting at the beginning of July.
But if secondary effects arise, or if inflation expectations rise, monetary policy may need to be tightened. It is important for monetary policy that what started as increases in oil and food prices in the world market does not spread to other areas and that inflation expectations in the slightly longer term do not become entrenched at a higher level, but fall back towards the inflation target once again. We know that inflation expectations can be largely explained by the actual rise in inflation. However, we do not know very much about how monetary policy affects inflation expectations over and above the effect via inflation, and how inflation expectations in their turn affect long-term inflation. There is an interesting approach in the academic research which involves the general public looking at outcomes and gradually learning how the economy functions and how the central bank reacts. If households are to believe that the central bank focuses on low and stable inflation they must be able to observe such behaviour. But such a process may take time, which we in Sweden could conclude in the mid-1990s when our own inflation target was established. This is an area we need to study more. Wage costs rising more than before In the Monetary Policy Report we assumed that hourly wages would increase by an average of around 4 per cent a year during the three-year agreement period. This is around 1 percentage point a year more than during the previous three-year period.