This applies regardless of whether one measures Swedish inflation in terms of the CPI, the CPIF or the internationally harmonised HICP.2 Inflation in several of the crisis-torn countries in Europe has been pushed up by the increases in indirect taxes implemented to improve public finances. And this explains some of the difference with regard to inflation in Sweden. But even taking this into account, it is clear that inflation has been more subdued in Sweden than in Europe in general since 2011 (see Figure 2). 2  2  The HICP is calculated in detail for the countries within the EU and at aggregate level also for a couple of countries outside of the EU. BIS central bankers’ speeches  The fall in inflation is broad A closer examination of developments in Sweden shows that the fall in inflation is broad and not caused by any individual component. We have already noted that inflation measured in terms of the CPI, the CPIF and the HICP is low, compared with both the inflation target and other countries. This also applies to measures of underlying inflation, that is, measures where one tries by various means to take into account that some prices vary a lot and may temporarily influence the CPI.3 Regardless of which measure one looks at, it is clear that underlying inflation has shown a falling trend since 2012 or earlier.
But the problem with prices falling is often said to be that demand will then collapse as households are postponing consumption while waiting for prices to fall so they can buy more cheaply.19 This reasoning is not necessarily wrong, but is really only a reformulation of the problem I mentioned above; that low inflation limits the scope for making monetary policy more expansionary. There is a risk that households will postpone their consumption – that is, that they will increase their saving – if the real interest rate becomes unjustifiably high. Here it is necessary to put price developments in relation to developments in wages and the return on saving. There is therefore scarcely reason to believe that anything dramatic will begin to happen just as the general rate of inflation becomes negative. One should also remember that substantial differences are hidden in the price trends for different product groups that lie behind the general rate of inflation. One example is developments in prices for technology-intensive goods such as TVs, computers and mobile  15  According to Drehmann et al. (2012), an average financial cycle, in which the credit cycle is a central element, is 16 years long. The length of an average business cycle is much shorter, perhaps five years. 16  Inflation expectations have fallen in recent years in the surveys conducted by the National Institute of Economic Research and Prospera. Short-term expectations are now just below one per cent, but long-term expectations are still close to the two per cent inflation target.