the same time cautious, is the best means of safeguarding low inflation and a stable economy in the long term. the current situation and future prospects how do we regard future developments? before i answer this question it may be worth a reminder that the forecasts we have made are based on the assumption that the repo rate will develop in line with market expectations ( figure 9 ). this means that the repo rate is expected to rise slightly further in future. international economic activity has been good in recent years. there are numerous indications that international growth will be relatively strong in future, although it is expected to slow down slightly ( figure 10 ). despite the good international economic activity, prices are expected to rise at a fairly moderate rate. this is partly due to the fact that international price pressure appears to be continuing. the good international economic activity is one reason why economic prospects remain favourable here in sweden ( figure 11 ). however, this is also due to the expectation that growth in domestic demand will be strong. this in turn is due to continued good productivity growth and that the labour market situation is continuing to improve. household consumption is also being stimulated by the fact that interest rates are relatively low. little by little economic activity in sweden will enter a calmer phase. one reason is that international growth will slow down and another is that monetary policy will become less expansionary. we are also assuming that productivity growth will in future slow down somewhat, which will mean that the economy approaches more normal growth figures in the long term. with the development now forecast, it is reasonable to expect that inflation will rise ( figure 12 ). domestic production costs are expected to increase more quickly as the economic upturn begins to make a greater impact on the labour market and thereby the rate of wage increase. the fact that productivity growth will gradually slow down also means that higher wages will have a greater impact on companies ’ production costs than has been the case in previous years. however, inflation is nevertheless expected to be relatively low during the greater part of the forecast period. a number of factors contribute to this. the continued international price pressure, combined with an expected appreciation in the krona mean that import price increases will remain low throughout the forecast period. the high productivity growth will also contribute to keeping down companies ’ labour costs and thereby inflation ( figure 13 ). however, these inflation - dampening forces are thus expected to lose strength further ahead. all in all, one can say that we see a favourable and not overly dramatic development

of the economy before us. essentially we see an economy where the wheels are turning at a good pace and things are generally going well. it is natural in such an economy for monetary policy to become less expansionary to ensure the good development continues for a long period. it is difficult to say how quickly the interest rate increases should be made. the inflation forecast we publish today shows that inflation is expected to be slightly below target two years ahead. this is partly due to the fact that energy prices are expected to fall slightly and thereby hold down inflation. when the restraining effect of the energy prices abates, inflation will rise. at the same time, the economy is expected to develop strongly during the forecast period. to ensure that inflation is close to the target and to contribute to a balanced development of the real economy, we decided yesterday to raise the repo rate by 0. 25 percentage points. it may in conclusion be worth emphasising that forecasts are always uncertain and that many things may occur to change this picture. for instance, international developments may be weaker than expected if the us economy slows down more suddenly than expected. with regard to economic activity in sweden, we instead see a risk that we are underestimating domestic demand. the way energy prices will develop in future is another genuinely uncertain factor in our forecasts. let me finally, before i summarise what i have already said, say a few words about our views on fiscal policy. as i mentioned at the beginning, the economic policy regime we have had in sweden over the past decade has functioned well. it has created a stability in the economy that we have not experienced in decades. an absolute condition for this regime has been that fiscal policy is conducted in a way that is compatible with long - term sustainable public finances. this condition would certainly appear to be met. having said that, one may observe that the formulation of fiscal policy in the short term affects supply and demand, employment and inflation. it thereby becomes a factor that needs to be taken into consideration when formulating monetary policy ( figure 14 ). the new budget entails a slightly more expansionary fiscal policy and thereby slightly stronger consumer demand than we had earlier assumed. however, above all the budget contained measures aimed at improving the labour market. in qualitative terms it appears reasonable to assume that these measures will increase the labour supply and gradually also employment. it is difficult to know how quickly this type of measure can have an effect, or how substantial the effect will be