How is inflation measured?

The most common and most well-known measure of inflation is the change in the consumer price index - the CPI. This measure is calculated and published every month by Statistics Sweden (SCB).

Each month, SCB “buys” a basket of goods and services. By purchasing the same goods and services, it becomes possible to study the size of the changes in the price of the basket. Since the quality of the goods can change over time, such as when a computer’s performance improves over time, SCB attempts to estimate the value of these improvements and exclude them from the price increases.

 

The prices included in the basket and the significance of the different price changes depend on how much of the various goods and services households buy. A product or service that is consumed on a large scale is given a greater weight than one that is consumed on a lesser scale. This means that price changes on a product or service that is consumed on a large scale have a greater impact on the CPI than price changes on a product or service consumed on a lesser scale.

The CPIF – target variable for the inflation target

From a monetary policy perspective, one disadvantage of the CPI is that it is directly affected by changes in the policy rate. These adjustments have, through their impact on mortgage rates, large and direct effects on the CPI which are not connected to underlying inflationary pressures. As of September 2017, the Riksbank therefore uses the CPIF, the consumer price index with a fixed interest rate, as target variable for the inflation target. The CPIF is calculated and published by Statistics Sweden on behalf of the Riksbank.

HICP used to enable comparison with countries within the EU

Another relatively well-known measure of inflation is the harmonised index for consumer prices, the HICP. The HICP attempts to measure approximately the same thing as the CPI, at the same time as trying to use similar (harmonised) methods in the various countries in the EU area. Another purpose of the index is that it can be used for comparisons of inflation rates between countries. The methods used to calculate the HICP differ in some cases from the methods for calculating the CPI. Neither interest rates nor housing prices are included in the HICP. The measure is therefore often close to the CPIF, which excludes the direct effect of changes in mortgage rates.

What is underlying inflation?

Inflation means that the general price level rises. But the CPI weighs together price increases on various goods. This means that increases in the prices of individual goods, such as oil, will cause an increase in the CPI. One usually also refers to a lasting change in the rate of price increase when one talks about inflation. But the CPI rises if, for instance, VAT is raised. Consequently, in order to deal with these “problems”, it is common to exclude some price changes from the CPI. This is often called underlying inflation, or core inflation, that is the more lasting or trend inflation. 

 

There is no individual measure that is in all situations the most relevant one for reflecting developments in underlying inflation, and the Riksbank therefore studies several different measures, including Trim85 and Und24 (see further Underlying inflation). When the inflation target concerned CPI inflation, some measures had a special status in the Riksbank's monetary policy analysis, namely those that ignored the direct effect of the Riksbank's own interest rate adjustments. One such measure was the CPIX. This was replaced by the CPIF in 2008. As the CPIF has in practice been more important for the shaping of monetary policy than the CPI, and to clarify the communication of monetary policy, the Riksbank also took the step in 2017 of formally changing the target variable from the CPI to the CPIF.

Further reading 

You can read more about the CPIF, the CPI and other inflation measures on Statistics Sweden’s website, and also download historical data.

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