Characteristics of sub-groups in the CPIF
Economic Commentaries, News In the monetary policy debate, rapidly rising services prices are considered to be particularly worrying, as these rates of price increase are judged to be more persistent and thus take longer to return to their mean value. The authors of a new economic commentary, Jesper Johansson and Oskar Tysklind, show that the persistence of Swedish services prices has not been particularly high, compared with other sub-groups of the CPIF inflation measure. Instead, it is highest for food and other goods.
Concerns are sometimes expressed in the international monetary policy debate that services prices have risen faster recently. This is considered to be particularly worrying as these rates of price increase are considered to be more persistent and linked to high demand and rapidly rising wages. Are these concerns justified when looking at Swedish data?
This Economic Commentary documents some statistical properties of price developments in the sub-groups of the CPIF that the Riksbank usually analyses, i.e. food, other goods, services and energy. Persistence is higher for changes in prices of food and other goods, compared with other CPIF sub-groups. The correlation with resource utilisation and the exchange rate is highest for food prices, while the correlation with wage developments is highest for service prices.
The fact that persistence is not very high for Swedish services prices indicates that we need not be concerned about inflation remaining at a higher level just because services prices have increased a little faster in recent months. They are judged to have done so because prices and fees that rarely change have increased unusually fast, such as rents and municipal fees. These increases are judged to be mainly due to earlier price and cost increases rather than strong demand or rising wage growth.
Authors: Jesper Johansson and Oskar Tysklind of the Monetary Policy Department.
ECONOMIC COMMENTARIES
Economic Commentaries are brief analyses of issues with relevance for the Riksbank. They may be written by individual members of the Executive Board or by employees at the Riksbank. Employees’ commentaries are approved by their head of department, while Executive Board members are themselves responsible for the content of the commentaries they write.