Jansson: We can see progress in the fight against inflation, although there is considerable uncertainty

The Riksbank's increases in the policy rate affect households with mortgages in a very concrete way. The costs of inflation can be perceived as more diffuse and are more difficult to grasp. But high inflation erodes purchasing power for everyone, especially those who already have small margins, pointed out Mr Jansson. “And the most important thing is that people maintain confidence in the inflation target when setting prices and wages,” he added.

“If we allow inflation to remain high for a long time, we may lose confidence in the inflation target. Then it will eventually be necessary to take more severe action with the interest rate to regain credibility. And this would entail very large real economic costs in the form of higher unemployment and lower production,” said Mr Jansson, and pointed to developments in the United States in the early 1980s as a deterrent. “Safeguarding the inflation target is thus a way of taking the real economy into account, as it will provide better economic development in the long term.”

Inflation is now on the way down. But Mr Jansson pointed out that the main reason why CPIF inflation has fallen so much is the sharp fall in energy prices. “Disregarding energy prices, inflation is still almost 5 percentage points above the inflation target. And the inflationary pressure here and now is still too high.” 

Mr Jansson said that conditions were essentially favourable for inflation to continue falling. The pandemic-related imbalances between supply and demand have declined and monetary policy has been tightened rapidly and firmly.

According to the Riksbank's latest forecast, the policy rate may be raised somewhat further. “But the interest rate path shows that we are making progress in the fight against inflation, and that we are approaching the policy rate peak. Having said this, there is still considerable uncertainty and we need to be prepared to change our monetary policy plan at all times.”

Mr Jansson emphasised that the fight against inflation is being facilitated to a large extent by our economic policy frameworks. “Considerable responsibility in fiscal policy and wage formation has not prevented inflation from rising relatively much. But it should reduce the risk of inflation rising further or becoming entrenched at a high level. It is also crucial that companies’ pricing behaviour returns to its previous pattern as quickly as possible. The better the interaction to bring inflation down, the less we will need to increase the interest rate.”