Martin Flodén: Bringing down inflation is top priority

News Inflation is far too high and monetary policy needs to be remain contractionary, but we are probably approaching the end of the interest rate hikes. These comments were made by Deputy Governor Martin Flodén, speaking at ABG Sundal Collier today about the Riksbank's decision to raise the policy rate by 0.5 percentage points at the end of April and his reservation against that decision.

Martin Flodén, Deputy Governor.

Martin Flodén, Deputy Governor.

- Inflation is far above our target of 2 per cent, and price increases in recent months have been much higher than the Riksbank’s forecast from February. It was therefore necessary to tighten monetary policy further.

However, Mr Flodén believes that developments in recent months indicate that it would have been sufficient to raise the interest rate by 0.25 percentage points. Household consumption and corporate investment have weakened rapidly, which will contribute to a fall in inflation. Labour market developments continue to be strong, but inflation expectations are stable and the two-year wage agreements have reduced the risk of a wage-price spiral. Given this, there is scope to take smaller steps with the interest rate increases, according to Mr Flodén.

- I would like to point out that I do not in any way place less emphasis than before on bringing inflation down. Fighting inflation remains my number one priority. If developments up until the next monetary policy meeting are not moving clearly in the right direction, the policy rate may need to be raised further.

He pointed out that, despite inflation being expected to fall rapidly this year, the Riksbank is assuming that it will remain at unusually high levels for some time to come.

- Monetary policy needs to be contractionary until we are convinced that inflationary pressures and companies’ price-setting behaviour are compatible with inflation sustainably close to the target, concluded Mr Flodén.

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Updated 09/05/2023