Breman: From 500 per cent to −0.5 per cent – what is next?

The 1990s crisis fundamentally changed Sweden. It led to a series of reforms that we are still living with today: the inflation target, the fiscal policy framework and the Industrial Agreement. These reforms have been successful; the economy has functioned better and prosperity has increased. We have also been better prepared when global crises have put the economy to the test. At present, the economic policy framework, and not least the inflation target, is being tested.

Difficult task but better prerequisites

“Inflation is too high. It is painfully high for households and companies that are concerned about both price increases and interest rate increases.” Ms Breman stressed that the policy rate would need to be raised further in the near term. The policy rate path from June indicates that the rate will be raised to close to 2 per cent in early 2023. We aim to tighten without the Swedish economy having to enter a recession. But it is important to be prepared for the tightening to be severely felt by many households and companies”, said Ms Breman. "We cannot allow inflation to become entrenched at high levels and by raising the interest rate now we are helping to bring inflation down again. This is our mandate from the Swedish Parliament; low and stable inflation will result in better economic development for all.”

“I am confident that we at the Riksbank will do what is needed to attain the inflation target. Thanks to the reforms in the 1990s, it is now easier than it was 30 years ago to deal with high inflation. We now have a better mandate and a constitutional independence that enables us to take decisive action to attain the target. Inflation expectations are also better anchored now than they were then, we have strong public finances and better functioning wage formation. However, this must not lead us to underestimate the challenges we are facing”, she warned.

How do we build long-term resilience?

The Swedish and global economies look different now than they did at the beginning of the 1990s. In Sweden, new vulnerabilities have been built up: high indebtedness among households and companies and a lack of investment in, for instance, defence, infrastructure, housing and climate transition.

“Today, therefore, I would like to invite you to discuss the economic policy framework. Is it possible to complement or modernise the framework to reduce known vulnerabilities while enabling long-run investments that boost potential growth and prosperity?” Ms Breman asked. “The Riksbank will act to bring inflation back to the target. But monetary policy is affected by the functioning of the fiscal policy framework and the labour market. We therefore need to facilitate a discussion on the economic policy framework and the long-term conditions for the Swedish economy over the next 30 years. I hope that our discussion today can be a starting point”, concluded Ms Breman.