Monetary Policy Report, June 2022

Last year, many economies recovered quickly from the crisis. Increasingly high economic activity has resulted in a strong labour market with high employment and low unemployment. However, the imbalances arising when demand increased faster than supply have been reinforced by Russia’s invasion of Ukraine and new pandemic-related restrictions in China. This has pushed up prices for energy, various input goods and food. The high rate of inflation in Sweden and abroad is being felt by households and is undermining purchasing power. Central banks around the world are now tightening monetary policy to cool down economic activity and bring inflation down.

Just like in other countries, price rises in Sweden have now spread increasingly and prices for goods, food and services have been rising considerably faster than expected since the start of the year. Companies’ costs have increased rapidly and the strong demand has made it possible to pass on these to consumer prices. However, there are also signs of changed price-setting behaviour in that companies have raised prices unusually strongly in relation to how much costs have increased.

Inflation has risen strongly and is expected to remain above 7 per cent for the remainder of the year. The risk has therefore increased that the high inflation will become entrenched in price setting and wage formation. The Riksbank therefore needs to use monetary policy to ensure that inflation returns to target. This makes it clear to price- and wage-setters that the inflation target can continue to be used as a benchmark.

The Executive Board deems that monetary policy needs to be tightened more than was assessed in April and has therefore decided to raise the policy rate from 0.25 to 0.75 per cent. The forecast for the policy rate has been revised upwards and entails that it will be close to 2 per cent at the start of next year. The Executive Board has also decided that, in the second half of the year, the Riksbank’s asset holdings shall shrink faster than was decided in April. With this monetary policy, inflation is expected to fall back next year and be close to 2 per cent from 2024.