Risk of misleading image and uncertainty about the inflation target This has caused some difficulties, and will likely continue to do so in the future, not least in terms of monetary policy communication. One problem is that the focus on CPI inflation – which in itself is not entirely unnatural – has led to flashy headlines in the media from time to time over the years about Sweden being in a state of deflation. When CPI inflation is negative, this is obviously correct in a purely technical sense, but the story behind the headline often fails to explain that it is to a large extent a result of the Riksbank lowering the interest rate, and that CPIF inflation typically is considerably higher. Foreign commentators in particular have therefore often come to the conclusion that the Swedish economy is in a highly critical situation and that the state of the real economy is deflationist as well, with very weak growth in production and employment. It cannot be ruled out either that this kind of media reporting can, at least to some extent, affect economic sentiment. It is of course unfortunate if this kind of misleading image takes hold simply because the Swedish CPI is calculated in the way it is. A potentially more serious problem is that even if CPIF inflation were reasonably close to 2 per cent, the formal target variable, CPI inflation, could be relatively far from the target for fairly long periods of time.
Sources: Statistics Sweden and the Riksbank  Figure 4. CPI inflation deviates significantly and for a long time from the inflation target  Note: The CPIF is the CPI with a fixed mortgage rate. Sources: Thomson Reuters and the Riksbank  12  BIS central bankers’ speeches