prices is often due to aggregate demand being significantly lower than the total supply of goods and services in the economy. this type of situation can arise for two reasons : one is that demand could fall heavily, for instance, as a result of households for some reason reducing their consumption. the other is that supply could increase significantly, for instance as a result of technological advances leading to increased productivity. while demand - driven deflation is connected with weak production growth, the opposite applies to supply - driven deflation. these are usually termed “ bad deflation ” and “ good deflation ” respectively. in practice it is not so easy to distinguish between one sort of deflation and the other. problems arise when demand is too low in relation to supply. in my opinion, there could be a possibility that the increasingly skewed distribution of income that has arisen over the past 20 years, particularly in the united states, but also in europe and in ‘ emerging markets, has led to total demand being excessively weak from a global perspective. however, to the extent that the present low price pressure is due to good productivity growth and the increased supply of cheap goods and services from china and india, it can thus be termed “ good deflation ”. these positive supply shocks, combined with the declining rate of inflation, have led to an increasing number of analysts, including fed governor ben bernanke, recently drawing attention to the risk that the negative output gap could be larger than anticipated. this would mean that disinflation is more pronounced than we are currently assuming. the structural changes may have made it even more difficult to assess the economies ’ long - term growth potential and consequently to estimate total resource utilisation. it is, of course, a complicating circumstance that factors a central bank has difficulty in identifying and controlling are important to inflation trends, in both the short term and in a longer perspective. however, there is at the same time a lot a central bank can do to prevent excessively low price increases and to parry the increased complexity following in the wake of globalisation. here i would in particular like to emphasise the importance of having a symmetric inflation target that functions as a clear, credible target for participants in the economy. i would also like to emphasise the importance of central banks ’ communication in a low - inflation economy, as it is then particularly important to create stable, positive inflation expectations. risks of deflation an interesting, but possibly hypothetical, question is whether there is

to monetary policy becoming more predictable and more credible. this has resulted in low, stable inflation expectations, which in sweden have on average remained close to the inflation target in recent years. 2. increased investment in it as i have already mentioned, productivity has developed more strongly than expected over the past year. unlike the situation during the second half of the 1990s, this upturn cannot be explained by increased production of ict goods in general and telecommunications products in particular, as these sectors have experienced a sharp fall since 2001. the higher productivity growth is instead due to an unusually large rise in total factor productivity, which is usually ascribed to technological and organisational improvements. historically, the broader impact of technological changes has lagged since it takes time to adapt an organisation and technology to each other in order to fully take advantage of the innovations. it is therefore possible that the large - scale investment in ict at the end of the 1990s is only now beginning to make a clear impact in the form of organisational improvements, cost cutting and higher productivity growth. in addition, ict developments have led, by enabling more efficient production in networks and at a distance, to new sectors in the service industries being opened to trade and international competition. another important factor in this process is the increasingly strong interaction between ict, trade and product markets, which enables outsourcing of labour - intensive stages of goods and services production to low - wage countries. 3. globalisation and the structural changes in the world economy the access to new information technology is thus one of the conditions for the new trade and production patterns that are emerging. however, the slackening in price trends is a result of many interacting factors that are partly connected with globalisation : – increased world trade and more operators lead to greater competition – deregulation and privatisation will also mean that competition increases – a greater degree of specialisation and utilisation of comparative advantages ( what is known as global labour reallocation ) lead to increased productivity and efficiency – more production in typically low - wage countries leads to lower costs all of this indicates that international price pressure should be lower during the coming years at a given point in the economic cycle. to gain a more comprehensive picture of the significance of the structural changes for prices, it may be useful to illustrate how they interact with other factors that might influence international price pressure, such as global demand and commodity prices. over the past few years, international economic activity has been weak, which has probably contributed to the low rate of price increase.