Breman: High inflation – the interest rate may need to be raised earlier

“Energy and food prices will probably continue to be high in the period ahead. The main reason is Russia’s invasion of Ukraine. The earlier rise in inflation may thus be further exacerbated. This is because Russia exports significant quantities of oil, natural gas and fertiliser and because Ukraine is a major exporter of cereals, mainly wheat and maize.” These were the words of Deputy Governor of the Riksbank Anna Breman in a speech about inflation that she gave to a group of upper secondary students visiting the Riksbank.

Date: 23/03/2022 09:15

Speaker: Deputy Governor Anna Breman

Place: Riksbanken

Inflation is affected by rising energy and food prices

Inflation in Sweden has already increased noticeably for many households and companies. Energy and food prices are also rising steeply – basic necessities for everyone but which central banks often disregard when they talk about inflation. “If the gap between how households perceive inflation and how we analyse it and communicate it is too great, this may reduce public confidence in the inflation target”, Anna Breman pointed out.

The inflation target in focus

The fact that inflation is now being driven by things households cannot do without, energy and food, may cause their inflation expectations to rise. The Riksbank is also working on new forecasts for inflation and will present its analysis in the Monetary Policy Report at the end of April.

“But we can already say that inflation will be significantly higher than in our last forecast. We cannot prevent inflation from rising in the short term. Our remit does, however, include taking action to ensure inflation is close to target in the medium term”, Anna Breman emphasised.

As things look now, it is reasonable to bring forward an increase in the policy rate. But we can also wind down our bond purchases more quickly. In order to determine appropriate monetary policy, we need to consider various factors that affect inflation in the medium term: the labour market, growth and inflation expectations”, Anna Breman said in conclusion.

Updated 23/03/2022