. nor have any serious imbalances arisen. so thus far there is reason to be positive about the economic situation ; most leading indicators point to an economic recovery, with an upturn in activity during 2002. there is, however, the problem that inflation has for a time been clearly above the riksbank ’ s 2 per cent target. to a certain extent the comparatively high inflation can be explained by various supply shocks that have raised the prices of electricity, meat, fruit and vegetables, for instance. the background to these shocks includes the previous winter ’ s low precipitation for hydroelectric power, livestock diseases and poor harvests due to last autumn ’ s unusually cold weather in europe. as i said, shocks of this type can raise the general price level and lead, as in these cases, to a transitory increase in the rate of inflation. but even if one disregards these price increases, inflation has risen. as we discussed in a number of inflation reports last year, this probably has a number of interacting explanations. one is that resource utilisation in the swedish economy has probably been somewhat higher than envisaged earlier. this in turn no doubt explains why wage increases, particularly in domestic sectors, have been higher than expected. as this has been accompanied by weak productivity growth, mainly it seems for cyclical reasons, it has led to upward pressure on prices. a general contraction of profit shares in the economy as a whole has presumably helped to modify price increases in recent years. but this has also left firms with less room to “ absorb ” further additions to costs and weak underlying productivity growth. all this naturally raises questions about potential growth resource utilisation, inflationary pressure, competition in various markets and the workings of the economy. resource utilisation higher than expected ever since inflation expectations closed onto the target some time after the mid 1990s, a very important consideration for inflation forecasts and thereby for the formation of monetary policy has been resource utilisation. this indicator concerns the relationship between actual demand and what the economy is capable of producing in the longer run without price and wage increases accelerating. let me point out first that neither the potential growth rate, resource utilisation nor the inflation propensity in a wide sense is something that can be measured directly. for some years now the riksbank has been drawing attention to questions of this type, analysing them and presenting detailed accounts in the inflation report. although we have mainly referred to various supply shocks as explanations for inflation ’

price pressure is first seen in other prices than consumer prices. if the riksbank waits to adjust the repo rate until inflation expectations and inflation have already increased, there is a risk that the delay will be too great. in this type of situation larger interest rate adjustments may be required than if the riksbank had acted at an earlier stage. this brings me to the current economic situation. however, first i would like to take a brief look back at the events that occurred in connection with the acts of terrorism in september. the riksbank ’ s actions following the terrorist attacks on 11 september 2001 after the terrorist attacks in the usa, the entire world was shocked to realise that something so dreadful could happen. the executive board made an assessment that the uncertainty caused by the acts of terrorism risked further subduing demand internationally, mainly through the effects on companies ’ and households ’ confidence in the future, which could result in a more profound and prolonged economic downturn. this was why the riksbank lowered its interest rate, together with the central banks in the usa, the rest of europe and several other countries. prior to the terrorist attacks in the usa on 11 september, new statistics indicated that the global economic downturn could reach its lowest level at the end of 2001. however the picture was not clearcut. as a result of the terrorist attacks, uncertainty increased even further regarding the time scale for a recovery. if the consumers ’ confidence with regard to the future were to decline, together with rising unemployment and a weak development in the stock markets, there was a great risk that activity in the us economy would be subdued. companies often react to uncertainty with a “ wait and see ” policy, which means that they postpone investments. in addition, there was uncertainty as to whether the financial system could cope with the problems arising as a result of the devastation in new york. on top of this, certain sectors in the global economy would be hit directly, for instance, insurance companies, airlines, tourism, etc. all of this risked worsening the economic downturn both in the usa and in other countries. the role of a central bank in this type of situation is to contribute to creating confidence and promoting financial stability. it is then important to act quickly and resolutely. this may be considered to contradict the claim that it is important for the riksbank to act predictably. however, for those who have observed the central banks ’ actions on other occasions when problems in the