How is inflation measured?
The most common and most well-known measure of inflation in Sweden is the change in the consumer price index, the CPI. When the Riksbank introduced the inflation target in 1993, it was expressed in terms of the annual rate of change in the CPI. As of September 2017, the Riksbank now uses the consumer price index with a fixed interest rate, the CPIF, as its target variable for the inflation target. Both measures are calculated and published every month by Statistics Sweden (SCB).
Every month, SCB collects price data for a large number of goods and services consumed in Sweden. Once the prices have been compiled, an average price level is derived for the current cost of living in Sweden compared to previously, in other words the consumer price index (CPI). A product or service purchased on a large scale has a greater impact on the CPI than a product or service purchased on a small scale. Quality improvements are also taken into account, such as when a computer's performance improves over time, and then excluded from the price changes.
The CPIF – target variable for the inflation target
As of September 2017, the Riksbank now uses the consumer price index with a fixed interest rate, the CPIF, as its target variable for the inflation target. The CPIF is calculated using the same data and in the same way as the CPI, excluding the effect of changes to mortgage rates. The reason for changing the target variable from the CPI to the CPIF is that the former has had drawbacks as guidance for monetary policy. One such drawback is that changes to the repo rate affect household mortgage rates, which then has an effect on the CPI, as households' living costs also change. Furthermore, these direct effects on the CPI also go "in the wrong direction": when the Riksbank cuts the repo rate to boost the inflation rate, household mortgage rates fall, causing CPI inflation also to fall in the short term. The Riksbank has therefore always looked at inflation measures other than the CPI in its assessments prior to interest-rate decisions. Inflation measured in terms of the CPIF was therefore the Riksbank de facto operative target variable for several years before it became the Riksbank's formal target variable for monetary policy.
The HICP is used to be able to compare with countries within the EU
Another measure of inflation is the harmonised index for consumer prices, the HICP. This is an index for international comparisons of inflation (read more about the HICP via one of the links below). Although there can be significant differences in the short run between the rates of increase in the HICP and the CPIF, the two measures are relatively close to each other.
The more permanent or trend inflation rate is usually called underlying inflation and can be calculated in different ways. 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. The calculation of these two measures is based on the same data as the calculation of the CPI. The Riksbank publishes the measures for Trim 85 and Und24 each month, on the same day as new outcomes for the CPI are published by Statistics Sweden.