Ohlsson: The inflation target – a benchmark for price-setting and wage formation
"The inflation target is important for price-setting and wage formation to function smoothly. It is therefore important that the inflation target is credible." This comment is made by Deputy Governor Henry Ohlsson, speaking at a conference organised by Facken inom industrin in Bålsta on Thursday.
The Swedish labour market is about to enter into large-scale wage bargaining rounds. The outcome of these is important to the economy as a whole, as both companies' competitiveness and employees' purchasing power will be affected.
Mr Ohlsson points out that the inflation target comprises an important benchmark for expectations in the economy and thereby lays the foundations for efficient price-setting and wage formation. Its purpose is to enable economic agents to make long-term plans, for instance in wage bargaining rounds and to enable households and companies to make good financial decisions. It also creates the conditions for good economic development with long-term economic growth.
He points out that the Industrial Agreement from 1997 has also played an important role in wage formation. "The inflation target and the Industrial Agreement have contributed to higher real wages in relation to the 1970s and 1980s. They have both functioned well - and they can continue to do so," concludes Mr Ohlsson.
"But right now we are worried about the low inflation," says Mr Ohlsson. The Riksbank therefore formulates monetary policy so that inflation rises towards the target and thus gives the inflation target credibility so that it can remain a benchmark in the wage bargaining rounds.
To ensure inflation rises towards the target, the Riksbank has cut the repo rate on two occasions this year and decided to purchase government bonds. "We are prepared to do more than this if it proves necessary. At the same time, it is important that the journey back towards the inflation target is a smooth one and does not pose any threat to production and employment."
"The Riksbank wishes to safeguard the inflation target," maintains Mr Ohlsson.
Read the entire speech: The inflation target – a benchmark for price-setting and wage formation
