Breman: Inflation needs to become low and stable again

Rising prices and higher interest costs are noticeable for households and companies. However, it would be even more noticeable for households and the Swedish economy in general if inflation were to remain at the current high levels. As we said in November, the policy rate may therefore need to be raised further. Deputy Governor Anna Breman made these remarks today, speaking on the economic situation and the Riksbank’s monetary policy at the Chamber of Commerce Mälardalen in Västerås.

Date: 20/01/2023 12:00

Speaker: First Deputy Governor Anna Breman

Place: Chamber of Commerce Mälardalen, Västerås

High inflation has required large rate hikes

2022 was another year characterised by dramatic developments, Ms. Breman said. Imbalances between supply and demand during the pandemic and high economic demand, in addition to Russia’s invasion of Ukraine and problems on the European energy market, led inflation to rise very rapidly over the year. This led to large rate rises both here and abroad. In Sweden, the Riksbank raised the policy rate from zero to 2.5 per cent.

Inflation has continued to rise over the winter

High inflation and higher interest rates are cooling off the Swedish economy and households have reduced their consumption. “So far, however, GDP growth and the labour market situation seem to have been a little stronger than we expected in the forecast in November. Inflation has continued to rise and CPIF inflation has become higher than expected, very much due to electricity prices.”
“Excluding energy prices, inflation has been more in line with the Riksbank’s forecast, although it is still far too high. In addition, the krona has weakened, which does not help when inflation is this high,” Ms Breman emphasised. “At the same time, there are signs that global price pressures have eased and, concerning electricity prices, forward prices show that they may rise less than was feared when we made our forecast in November, although uncertainty is very high here,” Ms Breman said.

The policy rate may need to be raised further

“It takes time for monetary policy to have its full effect. Last year’s rate rises will therefore not make a clear impression on the inflation figures until this year. But inflation is much too high and, as we said in our forecasts in November, the policy rate may need to be raised further to make sure we return to an environment in which inflation is low and stable,” said Ms Breman. “I have previously emphasised that monetary policy tightening is a matter of adjusting the level of the policy rate, the policy rate path and the pace at which asset holdings decrease. But exactly how monetary policy will be formed in the period ahead is something we will return to on 9 February, when the Riksbank’s next monetary policy decision will be published,” Ms Breman concluded.

Updated 20/01/2023