Account of monetary policy in 2014
Date
19/03/2015
Every year, the Riksdag Committee on Finance examines and assesses the monetary policy conducted by the Riksbank during the immediately preceding years. Prior to the assessment made in the spring, the Riksbank compiles an Account of monetary policy. In the Account for 2014 the Riksbank observes the following:
Inflation undershot the Riksbank's target of 2 per cent
The recovery of economic activity continued in 2014. GDP growth was higher than in the previous year and employment continued to rise. However, inflation was lower than the Riksbank's target of 2 per cent. CPI inflation was on average -0.2 per cent, which was largely due to the substantial repo-rate cuts the Riksbank has made in recent years and which have pushed down households' mortgage costs. But even excluding interest effects, inflation was low; CPIF inflation averaged 0.5 per cent. Inflation expectations fell somewhat over the year, also in the long term.
What kept inflation down?
The economic situation in both Sweden and the countries that are our most important trading partners was relatively subdued. Among other things, this has contributed to companies finding it difficult to raise their prices at the same pace as their costs have increased. There are also signs that increased competition and uncertainty over economic developments have held back price increases. The substantial fall in the oil price during the second half of the year also contributed to pushing down inflation towards the end of the year.
The Riksbank responded to the low inflation with substantial repo-rate cuts
To ensure the low inflation rises towards the target sufficiently quickly and the reduce the risk of inflation expectations in the longer term continuing to fall, the Riksbank cut the repo rate in several stages down to historically-low levels.
All forecasters were surprised by the low inflation
A comparison of forecasts from different analysts shows that the low inflation in 2014 came as a surprise to all of the forecasters. If one looks at forecasting performance over a longer period of time, the difference between the forecasters is generally small. The Riksbank has made comparatively good forecasts for GDP, unemployment and CPIF inflation, while the accuracy with regard to the repo rate and thereby CPI inflation has been poorer.
