Monetary Policy Report, September 2022

Inflation has risen rapidly and is high both in Sweden and abroad. Several factors connected to the pandemic and Russia’s war in Ukraine has contributed to this development. Recently, electricity and gas prices in particular have risen to very high levels in Europe. The rapid price increases undermine households’ purchasing power and make it difficult for both companies and households to plan their finances. To bring down the high rate of price increases, central banks worldwide have raised their policy rates at a rapid pace.

That consumer prices in Sweden have become so high is due not only to effects from abroad but also to good economic activity in Sweden. The combination of substantial international cost increases, effects of high energy prices on other prices and relatively strong Swedish economic activity has meant that CPIF inflation rose to 9.0 per cent in August. This is the highest level since 1991, and higher than in the Riksbanks’ assessement in June. The risk is still large that inflation becomes entrenched and it is extremely important that monetary policy acts to ensure that inflation falls back and stabilises around the target of 2 per cent within a reasonable time perspective.

The Executive Board assesses that monetary policy now needs to act more than was anticipated in June to bring inflation back to the target. The Executive Board has therefore decided to raise the Riksbank’s policy rate by 1 percentage point to 1.75 per cent. The forecast indicates that the policy rate will be raised further over the coming six months. The development of inflation going forward is still uncertain and the Riksbank will adapt monetary policy as necessary to ensure that inflation is brought back to the target within a reasonable time perspective. Rising prices and higher interest costs are being felt by households and companies. However, it would be even more painful for the Swedish economy if inflation were to remain at the current high levels. By raising the policy rate more now, the risk of high inflation in the longer term is reduced and thereby the need for an even greater monetary tightening further ahead.