Anna Breman: Inflation decline continuing, but risk of setbacks remains

“The risk of inflation becoming entrenched at too high a level has declined in recent months. As we communicated at our last monetary policy meeting, monetary policy should not be tighter than necessary. But we need to be prepared for the possibility of setbacks.”

In particular, Ms Breman pointed to geopolitical tensions, the continued weak krona and uncertainty about companies' pricing behaviour as risks that could cause inflation to rise again.

She also commented on yesterday's inflation outcome:

“The outcome was in line with our most recent forecast. Although the CPIF rose, this was expected and due to volatile energy prices. Core inflation continued to fall. The overall picture is that inflation is coming down, and it is important that this continues so that inflation becomes sustainably low and stable.”

Economic activity and the labour market are also slowing down much as the Riksbank had envisaged. However, Ms Breman emphasised that there are substantial differences between sectors. While residential construction has slowed down significantly over the past year, other business investment has continued to perform well.

“Our forecast is for activity in the Swedish economy to gradually increase towards the end of the year, when inflation has fallen back and household incomes rise. A return to real wage increases and low and stable inflation will also provide favourable conditions for investment to increase again in all sectors, including housing investment.”

“Construction investment is cyclical and in Sweden construction varies more than in many other countries. Although Sweden and the euro area have had similar policy rate levels in recent decades, housing investment has been considerably more volatile here than in, for instance, Finland and Germany. For our housing market to function better in the longer term, we need a broad review of housing policy in Sweden.”

The Riksbank will publish its next policy rate decision on 27 March. 

“Prior to our decision, we will have received more information that may affect the economic outlook and inflation prospects, and we will return with an overall assessment of what we consider to be an appropriate monetary policy to stabilise inflation sustainably at a low level.”