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Rocky international markets concern Riksbank

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12:28 CET+01:00
Turbulence in international financial markets has caused demand, production and employment growth to slow down more than the Riksbank expected.

The market turmoil, combined with signs of weakening economy and the increasing inflationary pressures have created uncertainty about future economic growth, writes Riksbank head Stefan Ingves in Dagens Nyheter.

Some signals point to the Riksbank needing to raise interest rates further, but other market conditions call for rates being left unchanged or even lowered. These conflicting indicators mean that adjusting interest rates cannot solve all economic problems, according to Ingves.

Ingves believes in acting with a long term perspective when it comes to interest rate adjustments rather than making changes in response to every new piece of information on economic conditions.

Higher prices for oil, electricity, and food lie in part behind elevated inflation. In Ingves's view, higher oil and electricity prices are temporary, but there is a good chance that food prices will continue to rise.

Additional inflationary pressures come from domestic wage increases and weak productivity growth in the corporate sector.

Ingves admits inflation and interest rates are rising in Sweden at the same time that economic growth is likely to slow. However, the extent to which turbulence in international markets may negatively affect Sweden's economy remains unclear.

Despite concerns, Ingves concludes with some reason for optimism.

Conditions in Sweden continue to keep the country free from the economic downturn affecting much of the rest of the world, he writes, and the Swedish economy is in better shape today than it has been for sometime.

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