in conclusion, how do i view the current situation more specifically? and what can we learn from history? during many of the periods of high inflation in connection with war, the effects of monetary policy have been heavily dependent on the expectations of companies and households regarding future economic developments. there is an example of a deflation spiral after the first world war when expectations of lower prices in the future led to falling aggregate demand. and there are examples of price and wage spirals, when expectations of higher prices in the future led to higher wage increases that eventually forced a change from a fixed exchange rate to a floating exchange rate. the inflation target was introduced in connection with this changeover. economic agents ’ expectations of future inflation are an important element in assessing the credibility of monetary policy with regard to attaining the inflation target. what is the situation today? five - year inflation expectations among money market participants have long been close to 2 per cent. the most recent quotation available at our meeting in april was 2. 2 percent on average. in may, it rose to just under 2. 4 percent. expectations have thus risen, albeit not to any alarming levels. it should also be added that the median, that is, the middle observation, is still at 2 percent. 12 it is important to point out that money market participants ’ inflation expectations are not formed in a vacuum. these actors at the same time form expectations of a number of macroeconomic key variables. this includes expectations of the coming monetary policy. in april 2022, money market participants expected a repo rate of rounded 0. 8 per cent twelve months ahead and a repo rate of 1. 1 per cent 24 months ahead from april 2022. in may, the corresponding expectations were approximately 1. 3 and 1. 6 per cent. in other words, money market participants'expectations of inflation are based on the expectation of a less expansionary monetary policy. i consider that an important conclusion can be drawn from this : merely because inflation expectations are close to the target, the riksbank cannot refrain from conducting an active monetary policy to make sure that it is attained in due course. the price increases we have seen in recent months are not something that monetary policy can affect. but the high inflation we have had in recent months risks setting off a spiral of price increases, wage drift, price increases, wage drift and so on. it is essential to ward off these tendencies in time. therefore, it was time to adjust the direction for monetary policy

bank raises the policy rate and thus suppresses both inflation and demand, thereby reducing the risk of the economy overheating. but if inflation rises as a result of a negative supply shock, the problem is more complex. if most people assume that the effect on inflation is transitory, the problem does not need to be so great. the central bank can then simply wait until inflation falls back again. however, one risk that is always present is that price impulses spread to other prices and start to affect economic agents ’ expectations. these may then expect inflation to remain high, or even rise further. the signs of such second - round effects have now begun to increase in many economies. this creates a tricky balancing act for monetary policy : at the same time as one wants to maintain confidence in the inflation target and prevent inflation from becoming entrenched at a high level, one wants to avoid pursuing a policy so tight that the economy enters a recession. as we saw, this was what happened after the first world war, although the motive then was to return to the previous price level rather than bring down inflation. to be a little drastic, one can say that the task facing the central banks is to avoid ‘ the great inflation 2. 0 ’, and to do so at the lowest possible cost in terms of lower production and higher unemployment. the conditions are better than before i intend to stick my neck out a bit here and say that the conditions for coping with this balancing act are quite good for sweden and at least considerably better than they were when inflation began to rise in the mid - 1970s. there are several reasons for this. none of these are news, but it is still worth reminding ourselves of them. firstly, since 1993, we have had an inflation target in the swedish economy. during the most recent period of lastingly high inflation, the idea was that inflation would be kept down by means of the fixed exchange rate. the fixed exchange rate was expected to have a disciplinary effect on price - setting and wage - formation, as excessive inflation in relation to the rest of the world would lead to difficulties for the export industry and increased unemployment. however, as i have pointed out, this did not work very well. expressed in economist terms, there was no credible nominal anchor in the economy, that is, a clear, quantified benchmark for price - setting and wage - formation. today, we have one in the form of the inflation target. during the period of inflation targeting, long