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.
Ongoing price squeeze in the non-durables sector So far we can say that the retail food sector is seeing a price squeeze following the arrival of new foreign players, and the current operators have begun to compete through low-price subsidiaries or jointly owned companies. This price squeeze appears to have been made possible by shrinking profit margins and low unit labour costs. The potential for price reductions is difficult to estimate, but comparisons with other countries as well as between different regions in Sweden indicate that there is scope for lower food prices in Sweden. For some time now the price squeeze has become increasingly noticeable to people in general in so far as we have more low-price shops to choose between and there is a wider range of cheap products in the traditional shops, but also through greater downward pressure on the prices of “ordinary” goods. It is difficult, however, to ascertain how long the price squeeze will continue and when it will have reached its full impact on the recorded CPI. Concluding remarks Globalisation and tougher competition have entailed effects both on price developments and on the labour market in Sweden and requires much in terms of the ability to adapt in the economy and in society on the whole. If the structural changes do not generate new employment quickly enough, the competition risks driving companies out of business and reducing the number of employees without  5  Source: International Tax Comparisons 2004, the Swedish Taxpayers Association.