Import prices, labour costs and profits – what role have they played in inflation dynamics?

Hanna Lovéus, Senior Economist at the Monetary Policy Department and Magnus Lindskog (former Advisor at the Riksbank) have analysed these relationships, which have been widely discussed in the light of the recent rapid price increases. Their conclusion is that there are differences in the developments between different parts of the business sector. The high growth rate in domestic prices partly reflects the fact that the energy sector has benefited from rising energy prices and the export industry has benefited from globally rising prices. However, the increase in domestic inflation is broad and reflects developments in several sectors, including consumer-related sectors.

Historically, Swedish producers have contributed to smooth out variations in consumer prices through lower domestic inflation when import prices have risen rapidly. Recently, however, contributions to consumer prices have been high from both imported and domestic inflation. Initially, the increase in domestic inflation in the entire economy (not just consumer prices) after the pandemic mainly reflected rising profits per unit of output. The contribution of labour costs was low in 2021 but gradually increased in 2022 and was high in the first half of 2023. The recent developments, with parallel and rapid increases in unit profits and unit labour costs is something that, like the increase in import prices and domestic prices, stands out from a historical perspective.

Author: Magnus Lindskog and Hanna Lovéus, the authors work or have previously worked in the Riksbank’s Monetary Policy Department.