to influence inflation up to our two - year horizon. here is a picture of our inflation assessment last october and the outcome ( chart 1 ). i have chosen to present it in terms of und1x because that is the indicator of inflation on which monetary policy has been focused in the past year. the chart also shows the price of imports and an indicator of underlying domestic inflation, undinhx. as you will see, we believed inflation would move up gradually in the wake of rising activity. this would be countered by low, even falling, import prices in connection with a stronger exchange rate, lower oil prices and generally strong global competition. even our inflation forecast was evidently on the high side, at least to date. it is perhaps even more noteworthy that underlying domestic inflation has turned out to be appreciably lower. this is something that observers of the swedish economy cannot ignore, particularly as the past decade has provided so many surprises of this sort, though not as dramatic. the main point to consider is, of course, how permanent the changes are likely to be. to what extent should we abandon earlier relationships and commit ourselves to a continuation of the relationships that have applied in recent years? why has inflation been low? the first thing to note is that this development has not been confined to sweden. inflation in many other countries has also been unexpectedly low. there, too, the reasons for this are not entirely clear. some pieces of the puzzle have been identified but not enough to make up a clear picture. as decision - makers, however, we cannot simply shrug our shoulders and say we don ’ t know. decisions have to be made and it would not be reasonable to go on acting as though nothing had changed until sufficiently long time series are available for econometric analyses. recently i had the pleasure of chairing a central bank seminar that the bis arranged on just these issues. my impression was that it has proved difficult to produce definite evidence of any structural shift in the relationships that govern inflation, such as various versions of the phillips curve. in many countries, including sweden, appraisals of resource utilisation, for example, are now more optimistic. as you are no doubt aware, in the past five years our output gap estimates have in fact been revised a number of times. one explanation i find fairly plausible is that after the profound crisis in the early 1990s we simply misjudged the size of the gap. there is also some support for the possibility that productivity

swedish economy might become overheated. at the riksbank we were more inclined to wait and see. there is no reason now to adopt a different view and exaggerate the risks of the share price fall. consumption is being sustained in the first place by a strong development of income that stems from increased employment, a good increase in real wages and a fiscal stance that is less restrictive than before. there is some cause for concern in the present round of wage negotiations. in a sense, that is inevitably the case when many settlements are being concluded simultaneously and the wage share is approximately two - thirds of the economy. that means that no other single factor is anything like as important as the wage trend for the path of the swedish economy in the coming years. the picture of the negotiations that are now beginning is mixed. the outcome to date has been a positive surprise. it also looks as though the negotiating parties are formulating their bids on the basis of the inflation target. moreover, the available picture of future wage expectations looks relatively good ( chart 3 ). here we see the wage outcome, wage expectations and unfilled job vacancies. it is evidently becoming increasingly difficult to find the right people for the jobs that are advertised. this presumably makes the risk of wage drift greater than in previous years. moreover, the wage demands that have been presented are higher than before the previous round of negotiations. wage outcome, wage expectations nov - 00 and unfilled job vacancies per cent and thousands, respectively wafe outcome ( left scale ) faktisk lon ( vanster skala ) arbetsmarknadens nov - 00 ( vanster skala ) wage expectations ( leftforvantningar scale ) kvarstaende lediga platser unfilled vacancies ( right scale ) ( hoger skala ) sources : prospera research ab and statistics sweden when it comes to judging future inflationary pressure, the degree of resource utilisation is the crucial concept, at least as long as inflation expectations are parked around the 2 % target. the next chart is instructive here ( chart 4 ). as you know, we estimate total resource utilisation econometrically in terms of the output gap. if we take the october estimates as a starting point and project them with the accompanying gdp forecast, we find that for the first time in a number of years we look like having full or more than full resource utilisation in the