of higher productivity growth. this can lead to financial imbalances and exaggerated indebtedness heightened by high share prices and increasing property prices. earlier periods with strong credit expansion and high demand in swedish economy have been followed by rising inflation. low inflation expectations and price - dampening effects from deregulations can now for a time hold back the inflationary pressure that builds up when resource use in the economy increases. low inflation combined with high growth can per se strengthen the concept that earlier patterns have been broken away from in the long term and we have entered a period with long - term higher growth. if demand increases so much that resources are put under pressure, however, inflation will sooner or later accelerate. there is a risk that prices then will increase very quickly and that inflation expectations will also increase. to get inflation in line with the target in that situation, it may be necessary to conduct a stringent monetary policy for a longer period. if expectations of future growth prospects at the same time are interrupted, a need for consolidation can arise in the household and business sector, which will strongly dampen growth. the consequences of altogether too strong growth now could therefore be instability in inflation and production later. if the financial imbalances have become altogether too great, there is a risk that the consequences will not be limited to great variations in growth and inflation but will even lead to lower overall production. the same course of development as in the usa? as we have said, it is incontestable that the swedish economy has functioned better than before. however, there is a risk that we will overshoot. the exceptionally long upswing in the usa has contributed to strengthening expectations on faster long - term growth in sweden as well. there are certain developmental features in the swedish economy that are reminiscent of the american economy which could indicate that. an important basis for the favourable development in the usa is probably the approach to budget consolidation and price stability that has guided economic policy there for a long time. and in those areas we have had a similar development in sweden although the process started later here. at the same time, the strong penetration of information technology in the american economy is considered to be a factor that has contributed to the productivity improvements recorded in the usa. as regards information technology, we are well to the fore, although it is first recently that statistics indicate some increase in productivity growth. expectations for a continued strong increase in productivity in the usa have also been a basis for the strong rise on the american stock

a positive development that neither should nor can be prevented by monetary policy. however, it provided a possibility to hold the interest rate at a low level and to allow a higher level of demand than would otherwise have been the case. but the effects on employment were limited by the underlying productivity growth. however, the riksbank might have needed to cut the repo rate further if one had at the same time observed a deterioration in demand or that the more long - term inflation expectations were far below the target. this was not the case ; inflation expectations in the slightly longer term were fairly well anchored around 2 per cent. at the same time, the riksbank ’ s forecasts showed that economic activity would remain strong. this period illustrates how important it is for monetary policy to analyse the driving forces behind inflation and for the policy to be forward - looking. when inflation rose last year, this was also largely due to supply factors, such as the price of oil and other commodities, which could not be checked even in the short term by monetary policy. however, in the background was a long period of high growth and increased tightness in the labour market. at the same time, productivity growth was declining and wages were rising. this entailed increased cost pressures, which justified a higher interest rate. monetary policy continued to tighten even when signs of weakening in economic activity began to appear. when we look ahead we can see that prices measured in terms of the cpi will fall this year and inflation will thus deviate substantially from the target. the primary cause of this is that mortgage rates and energy prices are falling rapidly when calculated as an annual percentage change. if we exclude the effect of our own interest rate cuts and the effects of falling energy prices, prices are not expected to fall. 6 i shall not go further into this, but merely wish to point out once again how important it is to analyse the driving forces behind inflation to be able to explain the monetary policy conducted. this means that we from time to time highlight different measures of inflation. in the current stage it is thus important to distinguish the effects of our own measures which we have implemented to alleviate the effects of the financial crisis on international growth and thus on growth in sweden. for a detailed discussion of this, see “ should monetary policy stabilise resource utilisation? ” economic commentary no. 1 2008, sveriges riksbank. inflation measured in terms of the cpif, which disregards changes in mortgage rates,