labour function? how will the stronger labour market situation affect wage negotiations? at the may meeting we were also able to observe that the statistics received for the first quarter showed a slightly more strained labour market situation than we expected to see in february. employment had developed roughly in line with our forecast, while the labour supply appeared to have increased slightly less than expected. unemployment was therefore a little lower than we had predicted in the february report. shortages in the business sector continued to increase. but my assessment was nevertheless that there was still plenty of spare capacity, if not yet to the same extent as we expected in february. a further reason why we foresaw higher inflationary pressures was that the government ’ s spring budget bill appeared likely to stimulate demand slightly more, at least next year, than we had previously estimated. as i said earlier, i drew the conclusion from this that the repo rate needed to be raised more during the forecast period than we believed in the february report. but my assessment was that the economic picture on the whole had not changed so much that the repo rate needed to be raised immediately. inflation was low, and it appeared, as i saw it, reasonable to assume that it would rise fairly slowly. the reason for this was that there were still several factors holding back prices. i pointed out that the important thing was to balance the pace of the interest rate increases so that inflation does not accelerate more rapidly than expected, but so that growth in production and employment is not slowed down too soon. how these considerations will be transformed into a new interest rate forecast is something we will return to in our next monetary policy report in june. views on our interest rate path in conclusion, i would like to say a few words on the experiences thus far of publishing our own interest rate path. it is still too early to draw any definite conclusions about how this has functioned, but some reflections may be worthwhile. the debate after our monetary policy meeting in february, when we presented our own interest rate forecast for the first time, was very lively. this was not because we chose to raise the repo rate by 0. 25 percentage points – this decision was hardly discussed at all. what attracted attention was the fact that the forecast for the repo rate that we published differed from the average expectations prevailing at the time. this applied both to the expectations that could be interpreted from market pricing and to the average of the interest rate forecasts made by other forecasters. but there were also fairly substantial

in early may. my assessment was then that the new information received indicated that the repo rate should be raised more during the forecast period than was implied by the forecast in the february monetary policy report. this is to ensure an inflation rate in line with the target and a balanced development in the real economy. but at the same time i considered that the changes in the economic picture were not so great that the interest rate needed to be raised immediately. let me explain why. in february we believed that growth would continue to be good, although it was expected to be slightly lower than last year. we estimated that cost pressures would rise during the forecast period as employment was expected to increase and wages were expected to rise faster. higher cost pressures could also lead to inflation rising, but we estimated that the favourable supply conditions would contribute to a relatively modest rate of increase. at the same time, we pointed out that the assessment of wage developments was uncertain. for instance, the rapid upturn in employment and the increased labour shortage implied more rapid wage increases, while the increase in labour supply and continued price pressures from abroad indicated slower wage growth. the assessment in the main scenario was that the repo rate should be raised at a fairly slow pace. we also presented a number of alternative scenarios and the consequences they would have for monetary policy. in one such scenario we investigated the consequences of more rapid wage increases than calculated. at our monetary policy meeting in may we were able to observe that the new information received since the publication of the monetary policy report in february indicated higher inflationary pressures than we had predicted. one reason was that the result of the spring wage bargaining rounds indicated that wages could increase more quickly during the forecast period than we had estimated in the main alternative in the report published in february. the motive for high wage increases not being part of our main scenario was that we considered that the spare capacity in the labour market still appeared substantial, which would slow down the rate of wage increase. how high wage increases will be in total will depend not only on the collective wage agreements, but also on how much wages rise outside of the agreements. as i mentioned in may, it is reasonable in the currently strong labour market situation to count on wage increases outside of the agreements being higher than they have been in recent years. how high will depend on how well the labour market functions. i pointed to a number of important questions then. will the labour supply increase to the extent expected? will the matching of demand for and supply of