. gdp growth this year was therefore expected to be high, which was supported by both the national accounts figures for the first quarter and the economic indicators for developments during the second quarter. there were also signals from the labour market that economic activity was continuing to improve, with an increasing demand for labour. we could also note that inflation had begun to increase, after having been strikingly low. the high inflation rate was partly explained by rising energy prices, but prices of certain other goods had also been raised more quickly than before. our assessment was that inflation would not change very much over the coming year and would then gradually increase as economic activity improved and there was a rise in the rate of wage increase. our forecast was that inflation would be on target a couple of years ahead, on the assumption that monetary policy gradually became less expansionary in line with market expectations in june. international statistics received over the summer indicate that economic prospects look more favourable now than we had assumed in june. the signals regarding the us economy are mixed, however, and some indicate that growth will be weaker than expected next year. however, the picture for the euro area and other parts of the world is that developments have been slightly stronger than assumed in our earlier forecasts. with regard to the swedish economy, the national accounts for the second quarter have confirmed our assessment in june that growth would remain strong. the statistics show that gdp growth during the second quarter was actually higher than our forecast. however, the development in the number of hours worked and the number of persons employed was weaker than expected, which reflected the fact that productivity growth had been much higher than anticipated. the new indicators received point to continued stable economic activity and to an improvement in the labour market in future. all in all, this indicates that growth will be higher than we had assumed in june, even taking into account the fact that expectations of repo rate increases have been adjusted upwards over the summer. the upward revision in growth prospects has not led to any major revision in our inflation assessment. although the high gdp growth in itself indicates that inflation may rise more rapidly in future, the strong productivity growth is at the same time expected to contribute to cost pressures being lower this year than was assumed in june. cost developments in the somewhat longer term are very difficult to assess. if productivity continues to develop strongly, companies may postpone recruiting new staff, which would mean a delay in the labour market upturn and continued low cost pressures. however, there are a number of indications that the

irma rosenberg : monetary policy in sweden speech by ms irma rosenberg, deputy governor of the sveriges riksbank, at the swedbank, stockholm, 18 september 2006. * * * thank you for the invitation to come here and speak. the topic of the conference is economic prospects and i will of course provide my views on these. however, i will speak in fairly general terms – a more detailed analysis will be presented in the riksbank ’ s inflation report, which is published at the end of october. before i move onto economic developments, however, i would like to take this opportunity to say a few words about how monetary policy is conducted in sweden in general, or the monetary policy strategy, as it is usually called. more specifically, i intend to take up some questions that have arisen in the discussions in the media and elsewhere as there still seems to be some confusion. this applies in particular to the objective of monetary policy. do we attach less importance to the inflation target now, or have we even introduced other objectives in addition to the inflation target? let me emphasise right now that no such changes have been made. our focus is on the inflation target and the central aim is to anchor inflation expectations in the economy around this target. however, when we formulate our monetary policy we also give consideration to the way the rest of the economy is developing. it is our reasoning on this that i intend to begin with. the inflation target and consideration of the real economy the riksbank has the statutory objective of maintaining a low and stable inflation rate, or of “ maintaining price stability ” as it is expressed in the sveriges riksbank act. we have specified this task as ensuring that cpi inflation is around 2 per cent a year, with a tolerated deviation interval of + / 1 one percentage point. as long as confidence in the inflation target is not threatened – or, as it is usually expressed, as long as the nominal anchor for setting prices and wages is not at risk – we also have the opportunity to take into consideration how the real economy, such as production and employment, develops. although the latter has not been written into the act, it was stated in the preliminary work to the new sveriges riksbank act that came into force in 1999 that it was natural that the riksbank should support the economic policy objectives of sustainable growth and high employment without neglecting the long - term price stability objective. this was considered a natural consequence