In the recent period, the Swedish economy has mainly been driven by firm export demand. This has generated healthy profits for companies and higher incomes for employees, and we are now at a stage where domestic demand is expected to take over as the driving force in the economy and employment to rise. But there is a risk that an improvement in the labour market will be held back by structural factors, i.e. that production and the labour market will not adapt quickly enough to changed conditions abroad, which could impair the prospects for a pick-up in domestic demand. In addition, we have recently seen signs of somewhat weaker economic activity than we had previously expected. Should this tendency prove to be more persistent, there is a risk of an economic downturn, with a softer inflation outlook as a consequence. I have previously noted a risk that rising interest rates and falling house prices could lead to unnecessary strains in the real economy in the long run, with a drop in demand as a result. This remains a risk, but in a situation with clearly weakening economic activity it may prove necessary to conduct monetary policy in a more expansionary direction. However, we are currently in a position where the uncertainty regarding what course the developments will take is still considerable. Therefore, we will as usual be monitoring the situation very closely up to the next monetary policy meeting.
Given that wage costs make up a large portion of the food sector’s costs, this difference in itself could explain the difference in prices. Detailed studies show that taxes, labour costs and other economic factors (e.g. GDP per capita and population density) may account for around half of the differences in food prices in Sweden and the EU.6 The other half appears to be largely attributable to lower competition pressures in Sweden than in other countries. That the price differences in relation to EU countries are due in large measure to the relative price competition is reinforced by the fact that there are also large price differences within Sweden, where the differences in wages and other costs between regions are small and the taxes the same. Studies7 show that the prices in the south-east and west of Sweden are around 8 and 5 per cent lower, respectively, than in the eastern part of the country. The prices in Greater Stockholm are some 6 per cent higher than those in the Greater Gothenburg area. This reflects the differences in shop structure in various parts of the country, with a much larger market share for low-price chains and other chain stores than for the three major players in southern and western Sweden than in eastern Sweden.