Main message The rapid increase in productivity is the most important explanation for the low inflation in recent years. But productivity will increase.

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Presentation transcript:

Productivity and monetary policy Deputy Governor Svante Öberg Juni 2007

Main message The rapid increase in productivity is the most important explanation for the low inflation in recent years. But productivity will increase more slowly in future. Combined with higher wage increases, this indicates higher inflationary pressures and thereby a higher interest rate over the coming years.

Three important questions The reasons behind the strong productivity increase Developments in productivity over the coming years The significance of productivity for monetary policy

Productivity in the business sector Annual percentage change Trend Sources: Statistics Sweden and the Riksbank

Sources: Statistics Sweden and the Riksbank The inflation outcome and inflation in the absence of shocks to productivity growth according to the Riksbank’s macroeconomic model Annual percentage change Note: UND1X inflation. Sources: Statistics Sweden and the Riksbank

Sources: Statistics Sweden and the Riksbank Productivity in the business sector Annual percentage change, 8-quarter moving average Sources: Statistics Sweden and the Riksbank

Structural changes Deregulated markets Globalisation IT – production and use

Productivity in the business sector Annual percentage change Note. Data are seasonally and day adjusted Sources: Statistics Sweden and the Riksbank

Productivity contribution, entire economy Annual percentage change TFP Other capital IT-capital TFP Other capital IT capital Source: M. P. Timmer, G. Ypma and B. van Ark (2003), "IT in the European Union: Driving Productivity Divergence?", GGDC Research Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005.

Labour productivity, entire economy Annual percentage change Note. Outcome and forecast according to Monetary Policy Report February 2007. Sources: Statistics Sweden and the Riksbank

Main message The rapid increase in productivity is the most important explanation for the low inflation in recent years. But productivity will increase more slowly in the future. Combined with higher wage increases, this implies higher inflationary pressures and thereby a higher interest rate in the coming years.