Price changes in Sweden – insights from five million observations
Economic Commentaries, News What affects inflation most – how often or how much do the prices of goods and services change? Riksbank economists Jacob Ewertzh, Mathias Klein and Oskar Tysklind have found this out by analysing five million price observations between the years 2010 and 2018.
Their study shows that when companies change their prices, they make roughly the same size adjustments every time over time. On average, the size of price changes has been fairly stable. The extent to which prices are lowered or raised from month to month does not therefore seem to be the decisive factor behind movements in aggregate inflation in the longer term. However, the study shows that there is a strong correlation between the rate of inflation and the frequency with which prices change. The same tendency - that it is the frequency, not the size of price changes that matters the most with regard to inflation - is also found in studies carried out on, for example, US data.
At the same time, the frequency and amount of price changes differ between different product groups. For example, the prices of goods change relatively rarely, but once it does happen, the price changes may be fairly substantial. With regard to food, there are a number of product groups that do not change their prices very often or very much. However, for some foods, such as fruit and vegetables, prices change relatively often and relatively much. When it comes to energy-related product groups, such as electricity and fuel, price changes have been relatively small during the observed period. But this is a group where prices have changed all the more often.
The authors, Jacob Ewertzh, Mathias Klein and Oskar Tysklind work in the Riksbank’s Monetary Policy Department.