MNI INTERVIEW: Riksbank Eyes Inflation Expectations - Jansson

Rising trade tariffs are likely to depress economic growth, but while their effects on inflation may be short-lived monetary policymakers must be alert to any risk of price expectations becoming de-anchored, Riksbank Deputy Governor Per Jansson told MNI on Tuesday.

While in theory the Riksbank would be able to look through elevated inflation if expectations remain stable in the near-term, Jansson highlighted the difficulties in practice of doing so and made the case for acting decisively if need be.

Once longer-term expectations rise to a level signalling inflation persistence "then is too late. So that's another problem, conceptually, that you need to act in such a way that that never happens," Jansson told MN following a speech at a Nordea event, at which he downplayed the likelihood of a near-term rate hike.

"So, following them [expectations] is useful, but the sort of the signal that they will give you it's going to be too late … so you want to be more pre-emptive than that," he said.

The world appears to be facing disorderly trade fragmentation in the face of the U.S. move towards protectionism, with its new tariff regime to be unveiled on April 2, Jansson said.

"The disorderly stuff ... that's going on now, isn't it? Tariffs on and off, and uncertainty being created all the time, and we start seeing the effects, markets being less optimistic about what Trump is doing. I mean, at least that's my reading ...I'm really worried about that," Jansson said.

"I think inflation is more difficult. It could be up in the short term and then perhaps down in the longer term ... But the growth side ...in particular if there's retaliation, then I don't see any positives for growth in this. Most of the stuff that is going on these days. I think, to me, feels like growth negative," he said.

"Thinking of a scenario where we get a jump start in demand that doesn't create an inflation problem, I have a hard time finding that scenario really." (See MNI INTERVIEW: Rapid Rate Move Up More Plausible-Riksbank Head)

MEASURES OF EXPECTATIONS

Asked about his preferred indicators of inflation expectations, given the well-known shortcomings of market and household gauges, Jansson said the Riksbank uses a raft of measures.

The approach is to look at "a set of indicators that tells you something about the credibility and the persistence of various inflation changes that you get - that would include things like wage formation and wage developments, what fiscal is doing," he said.

Nevertheless, it is hard to assess whether the upturn in inflation seen in Sweden and elsewhere will be ephemeral or enduring.

"A huge problem here is that something that starts being transitory, can ... [transform[ to become not transitory. Because it starts to filter through into other prices, exactly what we saw during the pandemic, where the huge energy shock ... eventually found its way through into other prices. It's really difficult. I don't have a simple answer, I'm sorry, but that's going to be a question to look at all the time now as we proceed.”