What does an increased share of products with low import content mean for inflation?
Economic Commentaries, News In a new Economic Commentary by Bengt Petersson, the author shows that an increased share of the product category with a low import content in the CPIF over time may have contributed to inflation remaining at a high level for longer than it would otherwise have done. The author says that there may therefore be reason to take greater account in inflation forecasts of varying degrees of stickiness and lag in these components of inflation.
In recent decades, the share of product categories with a low import content has increased in Swedish consumption and as a result, their weight in inflation has risen. An important reason for the increase in the share is that productivity growth trends are weaker in service-producing sectors than in goods-producing sectors in advanced economies. This has contributed to rising relative prices in the services sector, which has a low import content, and, as a result, households are spending less and less of their income on goods. There is less global competition for consumption with a low import content and sticky wage costs make up a larger share of total business costs.
During the most recent inflation cycle, the upturn in the rate of price increase in product categories with a low import content has come later and has so far remained at a high level for longer than it has for categories with a high import content. An increased share of the categories with a low import content in the CPIF over time may have contributed to inflation remaining at a high level for longer than it would otherwise have done.
Author: Bengt Petersson, who works at the Monetary Policy Department.
ECONOMIC COMMENTARIES
Economic Commentaries are brief analyses of issues with relevance for the Riksbank. They may be written by individual members of the Executive Board or by Riksbank staff. Staff commentaries are approved by the relevant head of department, while Executive Board members are themselves responsible for the content of the commentaries they write.