also envisaged that in 1998 inflation would be somewhat below 2 per cent. as we all know, forecasting economic activity and prices is not a simple matter. since such assessments cannot be very exact, one has to weigh up risks and probabilities. two secondary alternatives were therefore discussed in the march report, where future inflation might be lower and higher, respectively, than in the main scenario. in the former alternative, lower inflation might result from a weaker development of consumption. in the latter, on the other hand, higher inflation might stem from a weaker exchange rate that leads to higher growth for exports and gdp, thereby generating stronger inflationary pressure. against this background, i want to say something about our current view of tendencies for private consumption and the exchange rate. private consumption in 1996 household disposable income fell, unexpectedly, by 0. 1 per cent despite a strong increase in the wage bill. the national institute of economic research and many other observers had expected a 2 per cent increase in disposable income. the growth of consumption was therefore financed entirely from a reduction of the saving ratio to 5. 4 per cent. this has altered the starting point for assessing private consumption ’ s future path. in recent years household income has been greatly affected by measures for consolidating government finance, mainly increased taxes and decreased transfers. but for the impact of public systems, household income in each of the years 1994 - 98 would have been 3 to 4 per cent higher ( diagram 4 ). as it is, the level is likely to be virtually unchanged. the withdrawal of household income probably peaked in 1996 but even in the two following years the fiscal stance measured in this way is tight. diagram 4 h ou seh old sector ’ s real disp osab le in com e, gross an d net o f pu b lic sector tran sfers, direct t axes an d ch arges % g r o s s di s po s ab l e i n co m e - 1 - 2 - 3 diss p o s a b l e i n c o m e di n e t o f pu b l i c s e ct o r - 4 - 5 - 6 source : national institute of e conomic r esearch diagram 5 h ou seh old savin g as a percen tage of disposable in com e f i n an ci al s av i n g sav i n g - 2 r

ea eall s a v i n g - 4 - 6 - 8 s o u r ce cess : s t a t i s t i c s s w e d e n a n d n a t i o n a l i n s t i t u t e o f e c o n o m i c r e s ea earr c h a number of structural reforms ( cuts in transfer systems, the tax reform, etc. ) have probably elicited a permanent increase in the household saving ratio but the future tendency is difficult to foresee. one approach is to compare with countries where the economic framework for households resembles that in sweden. this suggests that both the household net saving ratio and the ratio of total wealth to disposable income are relatively low in sweden. it then seems unlikely that in a long - term perspective the saving ratio will fall back to the historically low levels in the 1980s ( diagram 5 ). leading indicators point to a continuation of private consumption ’ s upward tendency in the first quarter of 1997. house prices have shown signs of moving in recent months. a growing money supply and lending to the household sector likewise point to a continued increase in consumption. retail turnover, above all for consumer durables, strengthened in february and march, as is also evident in the march business tendency survey from the national institute. in the first four months of this year the number of cars newly registered in the household sector rose in annual terms by around 60 per cent. households have become more optimistic about their own economy ; in april a majority envisaged an improvement 12 months ahead. there is no cause at present to modify the main assessment in the inflation report - that consumption will show a stable but by no means dramatic rise in the coming years. but an appreciably weaker development of consumption, which was a prominent component of one of the alternative scenarios, seems to have become somewhat less probable. exchange rate the riksbank does not target the exchange rate. the monetary policy target is price stability. but the exchange rate does feature as one important factor in the riksbank ’ s assessment of inflation in the coming two years. the exchange rate conditions demand in the economy, particularly in the export sector, and also affects inflation directly in the form of import prices. the latter, more immediate effect is, however, transitory and of secondary interest provided it does not influence inflation expectations and thereby price and wage setting behaviour. an assessment of future inflation therefore