from time to time in the media. it has been claimed that the riksbank shows less concern about inflation moving outside the tolerance interval ’ s lower limit than it does about the upper limit being exceeded. that is not the case. a couple of years is too short a period on which to base arguments that deviations from the targeted rate are a sign that policy has not been symmetric. monetary policy work involves a lot of uncertainty, which is no doubt inevitable when the interest rate has to be set on the basis of forecasts that extend several years into the future. at present, moreover, assessments are particularly difficult so soon after the changeover to a low - inflation regime, with all that this may involve in the form of altered behaviour by households and firms. another complication is that in recent years, inflation throughout the world has been lower than expected. another aspect of this issue is the riksbank ’ s choice of a target variable. every conceivable indicator of inflation has its shortcomings and these have to be weighed against the advantages when choosing monetary policy ’ s target variable. the consumer price index ( cpi ) has the advantages of being well - known and established among economic agents and people in general as a measure of inflation. it also covers a large proportion of household consumption. these were central arguments when the cpi was chosen as the target variable in the beginning of 1993. a disadvantage with the cpi, however, is that it combines information about inflation ’ s underlying trend with transitory price movements. in the period in which the inflation target has been in force, transitory factors have had a marked effect on the cpi on a number of occasions. examples of such factors are tax changes ( most recently the increases to and subsequent cuts in property and tobacco taxes ) and fluctuations in interest rates ( which affect the cpi in the form of house mortgage expenditure ). during 1996 and 1997 in particular the cpi has been relatively markedly below not just the targeted rate but even the tolerance interval. this has faced the riksbank with educational problems. transitory effects on inflation ought to be a secondary consideration in monetary policy and be absorbed inside the tolerance interval of 1 – 3 per cent. that is one of the interval ’ s functions. and - 6provided it is a question of temporary price movements around a stable rate of inflation, there is no reason to counter such movements with repo rate adjustments. on the contrary, that might have a destabilising effect in the real

. do the wage settlements create really good conditions for increased employment and has a foundation been laid for further responsible wage settlements in the next negotiating round in two to three years time? some positive things in the swedish economy have also happened in recent years as regards competitive conditions and price formation. with the ongoing process of internationalisation, european monetary union and advances in the it field, there is likely to be a further intensification of competition and downward pressure on prices, to the benefit of swedish consumers. but there is cause to consider whether more can be done, which if there is would also assist monetary policy. finally i considered aspects of monetary policy and the current situation in this respect. in the past six months inflation prospects have improved. like many central banks in central europe, the riksbank has accordingly moved from a situation that pointed to the likelihood of a relatively quick succession of continued interest rate increases to one where the need of higher interest rates in the near future seems to have disappeared. with the bright inflation prospects and a strict interpretation of the riksbank ’ s rule for monetary policy decisions, today there may even be grounds for considering a minor downward repo rate adjustment. what the riksbank now has reason to consider is whether such an adjustment would lead to good conditions for stable economic development in the future. * * * gdp growth 1980 - 1997 index : 1980 = 100, seasonally adjusted trend : 1993 - 97 trend : 1985 - 90 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 sources : ecowin and the riksbank budgetbalance : sweden and eu - average per cent of gdp, 1998 - 1999 forecast by ni and oecd - 2 - 4 - 6 - 8 - 10 - 12 - 14 - 2 - 4 - 6 - 8 - 10 - 12 - 14 sweden eu - average sources : oecd and national institute of economic research ( ni ) wage curve : sweden and eu area wage / employee, annual percentage change, 1998 - 1999 forecast by oecd sweden eu - area 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 source : oecd inflationexpectations of labour market organisations per cent 4. 5 4. 0 3. 5 3. 0 2. 5 2. 0 1. 5 1. 0 0. 5 0. 0 - 0. 5 jan - 95 feb - 96 nov - 97 feb - 98 may - 98 4.