In this study, I have created two price indices from the National Accounts and CPI statistics: One for product categories with a low import content called “Non-tradables” (NT) and one for product categories with a high import content called “Tradables” (T). This is based on the import content of the components in the CPIF. The parts with an import share of over 20 per cent are classified as T and those with an import share of less than 20 per cent mainly as NT.^[3] Data for the import content of the different components have been taken from the National Accounts and include both the direct and indirect import content with calculations from so-called input and output tables. These data have then been matched with the corresponding components of the CPIF. The results of this study in terms of the T and NT breakdown are partly dependent on whether the group Electricity, gas and other heating fuels is placed in T or NT. There is already an alternative index, UNDINHX, which, in order to calculate alternative measures of core inflation, takes account of the import content. UNDINHX excludes price growth of goods that are judged to be mainly imported goods without taking into account underlying data. The Riksbank took the view in 2007 that it had become increasingly difficult in the UNDINHX to determine which goods are mainly imported and which should thereby be excluded. Statistics Sweden therefore stopped publishing this index. However, the difference between the development of UNDINHX and the currently calculated index is relatively small. The exception is the group Electricity, gas and other heating fuels, where the import content is somewhat less than 20 per cent, but where prices are increasingly influenced by international conditions.^[4] These conditions include cooperation within the EU where, in accordance with EU rules, Swedish electricity surpluses are exported via new cross-border cables to countries with a deficit. The T and NT price indices are then broken down into a total of seven different sub-indices. The product category with a low import content includes a number of services such as rents, repair and maintenance of cars, compulsory vehicle inspection, driving school training, car insurance, domestic travel, telecommunication services, restaurant services, accommodation, banking services and education. The product category with a higher import content includes a number of goods.

In Figure 1, we see that the average rate of price increase for products with a low import content (NT) is faster than for product categories with a high import content (T). The rate of price increase in T is more volatile than in NT, at least after 1995, and during the latest inflation cycle, the rate of price increase in NT peaks after that of T. The high rate of price increase in the early 1990s is mainly due to a tax reform, which raised VAT substantially for goods and for some services while broadening the tax base for VAT.^[5] The tax reform in the early 1990s led to significant price increases for some individual groups of goods, although services were also affected. The VAT base was broadened. Services became generally taxable and the previous reduced rates for construction and hotel and restaurant services were removed (see “Government Bill. 1997/98:1 ANNEX 6 1990-91 tax reform - an evaluation”).

Figure 1. Figure 1. Rate of price increase for product categories with a high and low import content Annual percentage change

The share of consumed products with a low import content (NT) has increased steadily over the past decades, although the most rapid increase occurred up until the mid-1990s. Figure 2 shows that the share, which was 29 per cent in 1980, rose to 42 per cent in 1995 and to 47 per cent in 2023. NT is largely made up of services and an increase in the share of services is natural in an economy where welfare increases. The same trends can also be found in other developed economies.^[6] For the euro area, see for example the speech in May 2019 “The rise of services and the transmission of monetary policy” by Benoit Cœuré, former member of the Monetary Policy Committee of the European Central Bank (ECB).

An important reason for the increase in the share of NT is that the productivity growth trend is weaker in service-producing sectors (which make up NT) than in goods-producing sectors in advanced economies. This has contributed to rising relative prices in the services sector and, as a result, households are spending less and less of their income on goods.^[7] See the arguments in Baumol W.J., Bowen W.G. “On the Performing Arts: The Anatomy of Their Economic Problems”, The American Economic Review, Vol. 55, No 1/2 (March 1965), where wage increases in service sectors, the study emphasises the example of the arts, are significantly higher than productivity improvements. This leads to large cost increases in the service sector "Baumol’s Cost Disease".

Figure 2. Figure 2. Weight in the CPIF for product categories with a high and low import content Per cent

Which parts of the product category with a low import content have increased in weight and by how much? In Figure 3, we see that it is above all the group “Other services” that has increased. It has more than doubled since 1980 and reached 29 per cent in 2023. This group includes car repair and maintenance, education, travel, dental fees, restaurant services, accommodation and banking services. The proportion of the basket spent on food by households in Sweden has decreased by almost as much.

Figure 3. Figure 3. Subgroup shares in the CPIF Per cent