Sweden's Riksbank has published Deputy Governor Göran Hjelm's first speech, in which he argues that monetary policy should, as far as possible, look through temporary supply-driven inflation when shocks also weaken the real economy, provided the central bank explains that stance clearly and fiscal policy and wage formation do not turn relative-price shocks into broad and persistent inflation. He warned that further supply disruptions, including climate-related shocks, are likely, but said Sweden is well equipped to deal with them through its monetary, fiscal and wage-setting frameworks. Hjelm said the Riksbank was right to tighten sharply in 2022 and 2023, taking the policy rate from 0 per cent to 4 per cent, because the earlier shocks were large, import prices surged, resource utilisation was high, the krona weakened and the risk of secondary effects was significant. By contrast, he said he supported leaving the policy rate unchanged at the 6 May meeting, with the rate at 1.75 per cent, because the disruption from the war in the Middle East appeared medium-sized and current conditions were more favourable, including low core inflation, low resource utilisation and a credible inflation target. He also pointed to neutral fiscal policy in 2023 to 2025 and wage agreements anchored to the inflation target as factors that helped monetary policy contain inflation without a larger hit to real activity. He said the Riksbank should strengthen this interaction further by using structural models more regularly to explain the shocks driving inflation, analysing cost pass-through across supply chains in more detail, and expanding scenario and sensitivity analysis around trade-offs between nominal and real stability.
Riksbank2026-05-22
Sweden's Riksbank publishes Hjelm speech urging clearer communication and stronger policy interaction on supply shocks
The Riksbank published Deputy Governor Göran Hjelm’s first speech, arguing that monetary policy should, where possible, look through temporary supply-driven inflation when shocks also weaken the real economy, provided communication is clear and fiscal policy and wage formation prevent broad, persistent inflation. He said the sharp tightening in 2022–2023, raising the policy rate from 0% to 4%, was justified, but supported leaving the rate unchanged on 6 May given more favourable conditions and a medium-sized shock from the war in the Middle East. Hjelm called for greater use of structural models and expanded scenario work to strengthen interaction between monetary, fiscal and wage-setting frameworks.