in the forecast period is expected to be below the target and vice versa. the repo rate was cut in two more steps in november, from 4. 10 to 3. 60 per cent, followed by a further reduction to 3. 40 per cent in december when the forecast was revised downwards again. even after the series of downward revisions during the autumn, the december assessment still carried a downside risk of the international slowdown being even more pronounced and prolonged than expected. the uncertainty about international economic prospects has been accentuated somewhat by the economic problems in brazil and the real ’ s depreciation since the turn of the year. the world economy may be affected contagiously, either via real mechanisms or via increased financial market turbulence. under normal circumstances, the real economic effects in the industrialised world from decreased trade with brazil should be relatively limited. there is a risk, however, of the crisis also becoming more profound among brazil ’ s neighbours, leading in time to somewhat larger repercussions in the industrialised countries as well. the effects via financial markets could be greater in the short run but developments to date in this respect have been better than many feared. the picture in other parts of the world economy at the end of 1998 is somewhat varied. growth in the u. s. economy is still good, whereas the slowdown in the euro area has become slightly more marked than many observers counted on and we have yet to see an economic recovery in japan. the sustained strength of the u. s. economy is mainly due to the unbroken growth of private consumption – the slowdown that was foreseen in our december inflation report has still to materialise. the stock exchange has recovered from last autumn ’ s fall and even reached new all - time highs. together with a positive development of employment, this has helped improve the confidence of american consumers. in time, however, a slowdown in the u. s. economy still seems probable ; but the course to date does suggest that it will not occur as soon as the riksbank expected earlier, in which case the trend in 1999 may be stronger. a more dramatic downturn could occur if the u. s. stock markets were to fall markedly. even without this, economic activity could slacken in connection with decreased investment on account of falling demand and lower profits, as well as with a lower consumption propensity among households whose debt burden is already very high. in the euro area the available statistics indicate that the slackening of

things, excludes mortgage interest costs. the june inflation report in 1999, for instance, illustrates how und1x was used to clarify the formulation of monetary policy. when the repo rate was left unchanged on this occasion und1x inflation was forecast to be close to 2 per cent towards the end of the forecast period while cpi inflation was expected to be considerably below target. the problems we encountered in communicating monetary policy, which arose in conjunction with the substantial rate cuts during the second half of the 1990s, were also a significant reason for the riksbank's decision in 1999 to publish a clarification of the formulation of policy and the application of the inflation target. 1 among other things the clarification specified the situations in which there may be reason to deviate from the simple rule of aiming policy at meeting the target of 2 per cent cpi inflation one to two years ahead. my discussion today is based on exactly the same line of reasoning as in that clarification. the second example is taken from spring 2001. higher food and energy prices due to foot and mouth disease and mad cow disease, as well as supply shocks in energy production, caused a sharp rise in cpi inflation. the price increases were judged to be temporary, and the riksbank decided therefore not to raise the repo rate. as the prices rises were estimated to disappear from cpi inflation relatively quickly, there was no need in this case to depart from the bank's simple rule of monetary policy. however there was a need in our external communication to illustrate clearly the assessment that it was mainly transitory price increases that had caused cpi inflation to be so high above target. consequently, to this end, the june inflation report in 2001 presented an inflation measure that was see heikensten, l, " the riksbank's inflation target - clarifications and evaluation ", sveriges riksbank quarterly review 1, 1999. adjusted to exclude temporary rises in prices. on that occasion there was no forecast for this adjusted measure. the third and most recent example is when the riksbank decided last year to highlight und1x excluding energy as an especially important index for assessing longer - lasting inflationary pressures. energy prices had risen steeply around the turn of the year 2002 / 2003. we judged this rise to be temporary and expected energy prices to fall back again. this meant that the inflation rate would come to be affected for a reasonably long period by these temporary fluctuations in energy prices. at