Most indicators have pointed upward since the Swedish Central Bank left the key interest rate unchanged at 1.75 percent at the end of January.
But recent developments in the Middle East could change that, and, according to Thedéen, it is too early to say what the longer-term effects on the economy will be.
"We see rising oil prices, we see rising gas prices. We already had higher electricity prices to begin with. They looked like they were going to come down, but in the futures market it looks like there won't be such a sharp decline," Erik Thedéen tells TT about the immediate market reactions to the Iran conflict.
"It is clear that this affects everyone who has to fill up their car and heat their house. It will have a dampening effect on the Swedish economy and could have some effect on inflation," he adds.
The interview was conducted in connection with a hearing in the Riksdag's Finance Committee.
Fairly small effects
According to Thedéen, the effects of the war are so far quite small. The big question is whether developments in the Middle East will impact economic activity more broadly, he believes.
Then we talk about investments and consumption. And we know very little about that. It's largely about duration: does it pass quickly or does it last a long time?
A higher oil price has "an almost mathematical connection" to higher prices for gasoline and diesel, according to Thedéen.
Then it feeds into the consumer price index (CPI). But other components can push in the opposite direction. So you can't say from this that we would get dramatically higher inflation.
The direct impact, with the price increases we have seen so far, is, by standard measures, quite limited.
“Great human suffering”
The development shows that we live in a world with "great geopolitical tensions," says Thedéen.
He adds that, ahead of the next Riksbank General Council meeting, there will also be new information about developments that must be analyzed to assess the economy and inflation prospects.
We may know more when we make the next monetary policy decision in two weeks, but I will most likely say that the uncertainty is great.
Poor growth and high inflation are called stagflation by economists. It is one of the most difficult economic situations for a central bank to address with interest rates and other measures.
