Anna Breman: The pyschology of inflation

Speech by Ms Anna Breman, First Deputy Governor of the Sveriges Riksbank, at Danske Bank, Stockholm, 12 April 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
16 April 2024

The rapid and sharp rise in inflation in recent years is an important reminder of how hard high inflation hurts households and companies and how damaging it is for the economy. High inflation has a negative impact on everyone, with the lowest income households suffering the most.

Let me start by saying that I am very confident we will stabilise inflation at the target. Monetary policy has contributed to a significant fall in inflation. At our last monetary policy meeting in March, my assessment was that we could probably cut the policy rate in May or June.

An overall assessment of the outlook for inflation going forward will determine the timing of any interest rate cut. The inflation outlook is currently favourable. An important question for me is how we move towards a less contractionary monetary policy without jeopardising the favourable conditions for both inflation and the real economy. An important factor in this trade-off is the expectations of households and companies and how this affects economic decisions. There is a significant difference, however, between companies' inflation expectations, which have fallen markedly, and those of households, which remain at a high level.

So today, I intend to talk about the psychology of inflation and how it affects households and companies, focusing on the following questions:

  • How have households perceived inflation so far and what affects their inflation expectations?
  • What have we learnt from the recent fight against inflation and how can we use it to understand inflation dynamics in the coming years? 
  • What does this mean for monetary policy in the near term?