Low domestic cost pressure In other words, the outlook from the autumn has so far remained largely intact, and economic activity is strengthening as expected. The situation is different for domestic cost pressure. In this respect, since the middle of autumn 2003, new data has gradually been received that has warranted changes in our view of the inflation situation. These relate to the labour market, which has been weaker than expected with consequences for our assessments of wage developments, to productivity, which has risen more than anticipated, with lower cost pressure as a result, and finally to actual inflation, which has been lower than expected, with effects also on inflation expectations, which have declined somewhat. Employment growth has therefore been weaker than expected, particularly at the end of last year. The same applies to the number of hours worked. The weak employment growth coupled with a lower number of labour market policy measures has resulted in higher unemployment. This rose from 4.5 per cent in February last year to 6.0 per cent in February this year. Business tendency data and other indicators currently suggest that employment growth in the private sector will be relatively weak in 2004. There are some signs that the labour market may be about to turn, but these are weak. Very recently, for example, the number of new job vacancies has increased slightly and redundancy notices have declined.
It seems unlikely, however, that the upswing could be derailed entirely for this reason. As regards inflationary pressure, there are a number of question marks as I mentioned earlier. We don’t know how long the recent rise in productivity will last. In the inflation outlook that I have presented, some consideration has been given to the new data. At the same time, there are good arguments pointing to both higher and lower productivity growth. The same applies to our view of international inflation. As regards wages, there are also risks on the upside, which are essentially related to the way in which wage formation in Sweden is conducted. It can still not be ruled out entirely that the wage bargaining round will be derailed. Should the outcomes prove higher than expected, it is likely to have an impact on the future level of interest rates. So far I have not said anything about the exchange rate. There may be reason to touch upon this. For a long time, we have expected a krona appreciation that over the course of the forecast period would bring us to levels approximately in line with what we believe to be appropriate in the long term, given mainly the competitiveness of the Swedish economy. During the period 2002-2003 as a whole, the krona strengthened roughly as expected. Recently, however, this strengthening has been curbed. One reason for this appears to be expected relative interest rates, where there has been a certain shift since the autumn.