Sweden's consumer price inflation has been slightly negative (-0.1 per cent in October) and there are concerns about deflation, the Japanese scenario, etc.
As The Financial Times has put it:
...But Mr Ingves talked of a rate rise helping “a normalisation of monetary policy”. With household debt at a record high of about 170 per cent of disposable income, he added: “A low interest rate for too long could lead to a troublesome situation beyond the forecast horizon as a result of a credit expansion.”
In my opinion, Mr. Ingves is correct at this point for three reasons:
- The consumer price variety of deflation is totally harmless. The economic mainstream just can't see it since it prefers textbook truisms to facts.
- An extended period of an extremely ease monetary policy may blow the credit bubble to a dangerous degree. With household debt at 170 per cent of disposable income, is there still some space left for more credit expansion? (Not much, I'm afraid.)
- The credit inflation (measured by the banks' assets & liabilities year-on-year growth) is at 4.9 per cent, which is just about normal. No urgent need for unconventional measures.
Yes, the Swedish central bank botched it, and not just once. When there was an unsustainable banking boom, Riksbank did nothing adequate. Now, when the banking sector growth has achieved something that may look like a sustainable level of growth, it is coping with the dilemma whether to pop the bubble now or keep blowing. A hard choice indeed.
By the way, this gentleman got it right:
“The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing.
Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosopher’s stone to make it last.”