We would do well to remember, however, that people’s perceptions of the future are often shaped not so much by words as by actions. So, after a series of purposeful decisions by the Government, the Riksdag (Sweden’s parliament) and the Riksbank, economic policy’s general commitment to macroeconomic stability began to inspire confidence. Economic policy’s credibility gave the Riksbank greater freedom to act The growing confidence accordingly meant in turn that, without jeopardising the objective of price stability, the Riksbank was able to lower the repo rate relatively markedly, from almost 9% to just over 4%. Interest rates for longer maturities also fell. This led, as we have all seen in recent years, not just to higher GDP growth but also to a more uniform development of demand in different sectors. When the cyclical upswing began towards the end of 1993, most of the growth came from the export sector. However, lower levels of interest rates benefited Swedish households and firms by easing the heavily restrictive effect of the high level previously. This contributed to an increase in domestic demand as well and broadened the economic upswing. That can be said to have instigated the considerable reduction of unemployment we have seen in recent years. Neither the Asian crisis in 1997 nor the turbulence in international financial markets in the autumn of 1998 had much of an impact, thanks not least to a monetary policy realignment in many countries. The Swedish repo rate was also cut, to a low of 2.90%.
For the path of the Swedish economy in the coming years, no other single factor is therefore anything like as important as the total wage trend. The picture of the negotiations that are now beginning is mixed and tensions do exist. Since the previous survey in September, all the interviewed groups’ expectations of the annual wage rise have been revised upwards for all time horizons. Wage expectations are highest among the employee organisations. Moreover, the wage demands that have been presented are higher than before the previous round of negotiations. It is evidently becoming more difficult to find people with the appropriate competence for the jobs that are advertised. This presumably makes the risk of future wage drift greater than in previous years. All this could be a sign that we are approaching a situation where, bit by bit, aggregate wage costs in the Swedish economy start to accelerate, albeit from moderate levels. •  When it comes to judging inflationary pressure in the coming years, a central concept is total resource utilisation. The available amount of unutilised resources is crucial for the domestic generation of inflationary pressure, at least as long as inflation expectations are parked around our 2% target. In the coming years it is highly probable that, for the first time in a long while, our estimates of total resource utilisation - the output gap - will show that the gap has closed and the economy has reached or even moved above the capacity ceiling.