Monetary Policy Report, April 2022

The global economy is still affected by the major disruption caused by the pandemic. In addition there is now Russia’s invasion of Ukraine. The war has caused great human suffering and led millions of people to flee. The economic consequences can be seen in new disruptions in global value chains, a worsening of delivery problems and increased uncertainty about access to several important commodities. Higher prices for energy and food are pushing inflation up further in a situation where the rate of price increase is already high in several countries.

CPIF inflation was 6.1 per cent in March, which is the highest level since the beginning of the 1990s. Last year’s upturn in inflation was largely explained by rapid increases in electricity and fuel prices, but since the monetary policy decision in February, inflation has become significantly higher than expected, even disregarding energy prices. Outcomes point to the upturn now being broad.

Monetary policy cannot affect commodity or freight prices. It is therefore unavoidable that the rate of increase in consumer prices of, for example, energy, food and certain other goods, will remain high for some time yet. However, the Riksbank can conduct monetary policy to counteract the higher inflation becoming entrenched in price-setting and wage-formation. The Executive Board has therefore decided to raise the repo rate from 0 per cent to 0.25 per cent. The forecast for the repo rate is that it will be raised a further two to three times this year and will be slightly below 2 per cent at the end of the forecast period. The Executive Board has also decided to reduce the pace of the asset purchases during the second half of the year, so that the holdings begin to decline. With this monetary policy, inflation is expected to fall back next year and be close to 2 per cent from 2024.