is of course possible that commodity prices will slow down as a result of weaker international economic activity. but the emerging economies ’ demand for commodities will probably remain as an underlying, long - term driving force that pushes up inflation. it is perhaps this international pressure on commodity prices and the risk of contagion effects on other prices and on wages that will be the first major test for the lowinflation policy. how should monetary policy react in general? what consequences will this have for monetary policy? one thing it is important to remember is that the rising commodity prices are examples of changes in relative prices. a relative price is the price of a particular product or group of products in relation to other prices. what has happened in recent years could be described as a global increase in the relative price of energy and commodities, such as food, in relation to manufactured products. inflation is due to long - term monetary policy, not relative prices changes in relative prices play an important role for how resources are allocated in a market economy. an increase in a relative price is a signal that resources have become scarce in a particular area in relation to other areas. it is therefore often profitable to invest there. it is exactly this type of market mechanism that appears when interest in mining increases and optimism rises in the parts of sweden suffering from depopulation. in a corresponding manner, high food prices provide an incentive to begin cultivating previously unused land around the world. there is thus reason to believe that the higher relative price will in the long term increase the supply of commodities, which will then better match the demand for them. however, the adjustment may take time. it remains to be seen whether supply will increase sufficiently to keep an even pace with world market demand. it is therefore difficult to predict how long relative commodity prices will continue rising. but what is fundamental from a monetary policy perspective is that changes in relative prices do not in themselves constitute inflation. inflation refers to general price levels, or the average of all prices, rising over time. the general price level is measured with some broader measure of prices, such as the consumer price index, cpi. monetary policy cannot and should not counteract changes in relative prices. but what central banks can govern in the long term is the way inflation develops. a change in relative prices can occur when there is low inflation as the price increases on the goods that become relatively more expensive are compensated for by low price increases or even falling prices on other goods. the same relative price change can occur with

they affect households ’ purchasing power. a price impulse can gain a foothold and have long - lasting effects on inflation regardless of where it originates. and the central bank must parry long - lasting effects, whether the impulses come from wages, food prices, oil or something else. the outlook is far from certain … in the forecast we published just over two weeks ago we assume that the rapid commodity price rises are partly temporary and that they will subside in the future. we are also expecting the krona to be strong. this will contribute to inflation falling. but of course this is uncertain, not least for the reasons i took up earlier this morning. if the international price impulses were to become stronger and longer lasting than expected, inflation would of course be higher. but as i see it, it is not impossible that the international price rises will instead be lower than expected. this would push down inflation more quickly. one possible reason for this would be if international economic activity slows down more quickly than anticipated. we have highlighted these risks in earlier reports. a further factor, which in my opinion contributes to the uncertainty in the assessment, is the increased interest in portfolio investment in commodities. if the expectations of future return on such investments alter, it could contribute to a more sudden slowdown. and this would gradually affect consumer price inflation. it is also possible that such an effect – that capital is withdrawn and invested in other assets – has contributed to the price of wheat falling more rapidly recently. with regard to movements in the commodity markets since the previous forecast, prices have moved in slightly different directions. pricing in different forward markets currently gives a slightly divided picture of what direction prices will take. the oil price has risen more than expected and forward rates imply that it may remain at a higher level. at the same time, the world market price for certain foods and metals has fallen in recent weeks, for instance, the price of wheat, meat and aluminium. however, the price of some other foods, such as rice, has risen recently. … but we must nevertheless take a stance but regardless of whether the international price impulses are temporary or more lasting, they must not be allowed to push up inflation permanently! in my opinion, the risk of this has increased in that inflation expectations have risen during the autumn. according to prospera ’ s survey in april, however, expectations have fallen slightly. the national institute of economic research ’ s consumer tendency survey also indicates that households ’ inflation expectations have been