Our ambition will then be to make it clear that we have done so. By raising and lowering the steering interest rate - the repo rate - the Riksbank attempts to influence inflation. As it is so difficult to steer inflation in the short term, the Riksbank makes an assessment of developments for the coming 1-2 years. This is the period of time usually assumed necessary for an interest rate adjustment to work its way through the economy and have a full impact on the rate of price increase, i.e. inflation. The Riksbank uses a simple rule-of-thumb when shaping its monetary policy. If the total picture of inflation shows that it is expected to be above or below the target level, the steering interest rate is adjusted accordingly. There are four main factors in the analysis of future inflation that stand out as central to the shaping of monetary policy: the development of total resource utilisation, international price trends, the exchange rate and the general public’s inflation expectations. Inflationary pressure varies according to the demand situation and to changes in resource utilisation. The stronger the upturn in demand in relation to potential production, the greater the risk that prices and wages will rise rapidly and vice versa. This is why we who work in central banks around the world  BIS Review 12/2003  1  must analyse the picture of economic activity as a whole, despite the fact that inflation is our target variable.
At the same time, households’ savings were at a high level in 2002, which means that there may be some scope to increase consumption despite the restraining effects. Altogether, I believe there is also reason for a downward revision of the estimate of the Swedish growth rate over the coming years. The expected upturn is assessed to be somewhat superficial. This also assumes that the Iraq conflict does not develop in a way that will seriously deteriorate future prospects. The shaping of monetary policy A decisive factor in the shaping of monetary policy in future is the total picture of inflation prospects. A slightly more subdued growth in demand both in Sweden and abroad is expected to lead to capacity utilisation being slightly less strained. At the same time, energy prices have pushed up inflation. However, the Riksbank’s assessment is that the upturn in inflation is temporary and that there is  reason to expect lower inflation as early as the late spring and summer. Although, as I said earlier, this assumes that those setting prices and wages do not attempt to compensate themselves for the temporary price rise. All in all, it is a question of balancing the risks of, for instance, a weaker growth in the economy, against the risk that the upturn in inflation will have contagion effects. This is what the Executive Board must do at its monetary policy meeting on 17 March.