Martin Flodén: Monetary policy aimed at bringing inflation back to target

Inflation has been higher than expected over the summer. It is clear that we will need to continue to raise the policy rate in the near term in order for inflation to fall. These were the words of Deputy Governor Martin Flodén, speaking at DNB in Stockholm today on the economic situation after the summer.

Date: 24/08/2022 12:00

Speaker: Deputy Governor Martin Flodén

Place: DNB Bank

There is high pressure in the economy: the labour market is strong and manufacturing companies remain optimistic about the situation in the future. But the high inflation and rising interest rates are worrying Swedish households.

“After a very strong year, we expect a slowdown in the economy. So far, forecasts have indicated a soft landing in the economy. However, it is difficult to assess how much the economy needs to slow down in order for the high inflation to return to target. The development of the economy may thus be weaker,” said Flodén.

Over the summer, inflation has been quite a lot higher than the Riksbank expected in its forecasts. At the same time, the prices of several international input goods, such as commodities and petrol, have begun to fall. This is because monetary policy measures around the world have begun to restrain demand and supply problems have begun to decline. “But energy prices in Europe will entail major challenges this winter," said Flodén.

“Inflation is problematically high. Monetary policy is aimed at ensuring that inflation returns to the target. “In June, our assessment was that raising the policy rate more in the short term would reduce the risk of high inflation in the longer term and thereby also reduce the need for greater monetary policy tightening further ahead. Developments over the summer underline the need to continue to act decisively so that inflation returns to the target of 2 per cent. But exactly how much the policy rate needs to be raised is something we will return to on 20 September when our next monetary policy decision is published,” concluded Flodén.

Updated 24/08/2022